##### 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 June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number: 333-144396
 GENERAL NUTRITION CENTERS, INC.
  Delaware
    
    72-1575168(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)300 Sixth Avenue 
Pittsburgh, Pennsylvania
    
    15222
(Zip Code)(Address of principal executive offices)
 (412) 288-4600
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



TABLE OF CONTENTS
  
 PAGEPART I  FINANCIAL INFORMATIONExplanatory Note.Item 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
    
    
    1Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three and six months ended June 30, 2008, the three months ended June 30, 2007,
the period from March 16, 2007 to June 30, 2007, and the period ended March 15, 2007
    
    
    2Unaudited Consolidated Statement of Stockholders Equity for the six months ended June 30, 2008
    
    
    3Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008,
the period from March 16, 2007 to June 30, 2007, and the period ended March 15, 2007
    
    
    4Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4T. Controls and Procedures
    
    
    43PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    47Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3. Defaults Upon Senior Securities
    
    
    55Item 4. Submission of Matters to a Vote of Security Holders
    
    
    55Item 5. Other Information
    
    
    55Item 6. Exhibits
    
    
    55Signatures
    
    
    56EX-10.1EX-31.1EX-31.2EX-32.1




---



##### 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)
 June 30,
    
    
    December 31,2008
    
    
    2007 *(unaudited)Current assets:Cash and cash equivalents
    
    $
    55,782
    
    
    $
    28,854Receivables, net
    
    
    83,202
    
    
    
    84,666Inventories, net (Note 3)
    
    
    342,074
    
    
    
    334,149Deferred tax assets, net
    
    
    17,029
    
    
    
    17,029Prepaids and other current assets
    
    
    31,179
    
    
    
    33,474Total current assets
    
    
    529,266
    
    
    
    498,172Long-term assets:Goodwill (Note 4)
    
    
    626,420
    
    
    
    626,270Brands (Note 4)
    
    
    720,000
    
    
    
    720,000Other intangible assets, net (Note 4)
    
    
    167,179
    
    
    
    172,872Property, plant and equipment, net
    
    
    196,955
    
    
    
    190,848Deferred financing fees, net
    
    
    24,453
    
    
    
    26,377Other long-term assets
    
    
    4,810
    
    
    
    5,093Total long-term assets
    
    
    1,739,817
    
    
    
    1,741,460Total assets
    
    $
    2,269,083
    
    
    $
    2,239,632Current liabilities:Accounts payable, includes cash overdraft of $4,871 and $4,124, respectively
    
    $
    104,591
    
    
    $
    101,953Accrued payroll and related liabilities
    
    
    25,470
    
    
    
    27,477Accrued income taxes
    
    
    13,338
    
    
    
    1,878Accrued interest (Note 5)
    
    
    15,310
    
    
    
    18,110Current portion, long-term debt (Note 5)
    
    
    8,065
    
    
    
    8,031Deferred revenue and other current liabilities
    
    
    78,385
    
    
    
    82,635Total current liabilities
    
    
    245,159
    
    
    
    240,084Long-term liabilities:Long-term debt (Note 5)
    
    
    1,075,164
    
    
    
    1,078,950Deferred tax liabilities, net
    
    
    266,842
    
    
    
    267,788Other long-term liabilities
    
    
    44,427
    
    
    
    44,085Total long-term liabilities
    
    
    1,386,433
    
    
    
    1,390,823Total liabilities
    
    
    1,631,592
    
    
    
    1,630,907Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    591,232
    
    
    
    590,593Retained earnings
    
    
    49,332
    
    
    
    18,984Accumulated other comprehensive loss
    
    
    (3,073
    )
    
    
    (852
    )Total stockholders equity
    
    
    637,491
    
    
    
    608,725Total liabilities and stockholders equity
    
    $
    2,269,083
    
    
    $
    2,239,632
 
 *
    
    Footnotes summarized from the Audited Financial Statements  1




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(in thousands)
 Successor
    
    
    
    PredecessorThree months ended
    
    
    Six months ended
    
    
    March 16-
    
    
    
    January 1-June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007Revenue
    
    $
    422,662
    
    
    $
    389,479
    
    
    $
    850,795
    
    
    $
    451,559
    
    
    
    $
    329,829Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    274,277
    
    
    
    260,454
    
    
    
    553,167
    
    
    
    303,231
    
    
    
    
    212,175Gross profit
    
    
    148,385
    
    
    
    129,025
    
    
    
    297,628
    
    
    
    148,328
    
    
    
    
    117,654Compensation and related benefits
    
    
    62,884
    
    
    
    60,422
    
    
    
    124,455
    
    
    
    70,481
    
    
    
    
    64,311Advertising and promotion
    
    
    13,640
    
    
    
    14,283
    
    
    
    31,787
    
    
    
    14,512
    
    
    
    
    20,473Other selling, general and administrative
    
    
    24,911
    
    
    
    22,980
    
    
    
    49,836
    
    
    
    26,352
    
    
    
    
    17,396Foreign currency loss (gain)
    
    
    (29
    )
    
    
    (130
    )
    
    
    63
    
    
    
    (130
    )
    
    
    
    (154
    )Merger-related costs (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,603Operating income (loss)
    
    
    46,979
    
    
    
    31,470
    
    
    
    91,487
    
    
    
    37,113
    
    
    
    
    (18,975
    )Interest expense, net (Note 5)
    
    
    19,433
    
    
    
    23,634
    
    
    
    42,504
    
    
    
    27,872
    
    
    
    
    43,036Income (loss) before income taxes
    
    
    27,546
    
    
    
    7,836
    
    
    
    48,983
    
    
    
    9,241
    
    
    
    
    (62,011
    )Income tax expense (benefit) (Note 10)
    
    
    10,538
    
    
    
    3,097
    
    
    
    18,635
    
    
    
    3,638
    
    
    
    
    (10,697
    )Net income (loss)
    
    
    17,008
    
    
    
    4,739
    
    
    
    30,348
    
    
    
    5,603
    
    
    
    
    (51,314
    )Other comprehensive income (loss)
    
    
    2,343
    
    
    
    2,626
    
    
    
    (2,221
    )
    
    
    2,917
    
    
    
    
    (283
    )Comprehensive income (loss)
    
    $
    19,351
    
    
    $
    7,365
    
    
    $
    28,127
    
    
    $
    8,520
    
    
    
    $
    (51,597
    )
  2




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity
(in thousands, except share data)
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Dollars
    
    
    Paid-in-Capital
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    EquityBalance at December 31, 2007
    
    
    100
    
    
    $
    
    
    
    $
    590,593
    
    
    $
    18,984
    
    
    $
    (852
    )
    
    $
    608,725Return of capital to GNC Corporation
    
    
    
    
    
    
    
    
    
    
    (813
    )
    
    
    
    
    
    
    
    
    
    
    (813
    )Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,452
    
    
    
    
    
    
    
    
    
    
    
    1,452Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,348
    
    
    
    
    
    
    
    30,348Unrealized loss on derivatives designated and qualified
as cash flow hedges, net of tax of $945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,652
    )
    
    
    (1,652
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569
    )
    
    
    (569
    )Balance at June 30, 2008 (unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    591,232
    
    
    $
    49,332
    
    
    $
    (3,073
    )
    
    $
    637,491
  3




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 Successor
    
    
    
    PredecessorSix months
    
    
    Period
    
    
    
    Periodended
    
    
    March 16-
    
    
    
    January 1-June 30,
    
    
    June 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    30,348
    
    
    $
    5,603
    
    
    
    $
    (51,314
    )Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depreciation expense
    
    
    14,897
    
    
    
    7,641
    
    
    
    
    6,510Deferred fee writedown  early debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    11,680Amortization of intangible assets
    
    
    5,732
    
    
    
    2,768
    
    
    
    
    866Amortization of deferred financing fees
    
    
    1,923
    
    
    
    1,069
    
    
    
    
    589Amortization of original issue discount
    
    
    165
    
    
    
    89
    
    
    
    
    Increase in provision for inventory losses
    
    
    6,749
    
    
    
    3,099
    
    
    
    
    2,247Non-cash stock-based compensation
    
    
    1,452
    
    
    
    714
    
    
    
    
    4,124(Decrease) increase in provision for losses on accounts receivable
    
    
    863
    
    
    
    
    
    
    
    
    (39
    )Decrease in net deferred taxes
    
    
    
    
    
    
    3,146
    
    
    
    
    (3,874
    )Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    442
    
    
    
    (5,190
    )
    
    
    
    1,676(Increase) decrease in inventory, net
    
    
    (15,238
    )
    
    
    9,710
    
    
    
    
    (2,128
    )Decrease in franchise note receivables, net
    
    
    398
    
    
    
    828
    
    
    
    
    912Decrease (increase) in other assets
    
    
    1,442
    
    
    
    (12,056
    )
    
    
    
    3,394Increase (decrease) in accounts payable
    
    
    1,961
    
    
    
    (1,071
    )
    
    
    
    3,749Increase (decrease) in accrued taxes
    
    
    12,252
    
    
    
    
    
    
    
    
    (4,967
    )(Decrease) increase in interest payable
    
    
    (2,800
    )
    
    
    24,982
    
    
    
    
    (7,531
    )Decrease in accrued liabilities
    
    
    (8,572
    )
    
    
    (185
    )
    
    
    
    (12,682
    )Net cash provided by (used in) operating activities
    
    
    52,014
    
    
    
    41,147
    
    
    
    
    (46,788
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (21,205
    )
    
    
    (9,567
    )
    
    
    
    (5,693
    )Acquisition of the Company
    
    
    
    
    
    
    (1,615,934
    )
    
    
    
    Franchise store conversions
    
    
    34
    
    
    
    
    
    
    
    
    Store acquisition costs
    
    
    (140
    )
    
    
    (85
    )
    
    
    
    (555
    )Net cash used in investing activities
    
    
    (21,311
    )
    
    
    (1,625,586
    )
    
    
    
    (6,248
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of new equity
    
    
    
    
    
    
    552,291
    
    
    
    
    Capital contribution from Parent
    
    
    
    
    
    
    1,801
    
    
    
    
    Contribution from selling shareholders
    
    
    
    
    
    
    
    
    
    
    
    463,393Return of capital to Parent company
    
    
    (813
    )
    
    
    
    
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    747
    
    
    
    4,849
    
    
    
    
    (4,136
    )Borrowings from new revolving credit facility
    
    
    
    
    
    
    10,500
    
    
    
    
    Payments on new revolving credit facility
    
    
    
    
    
    
    (10,500
    )
    
    
    
    Borrowings from new senior credit facility
    
    
    
    
    
    
    675,000
    
    
    
    
    Proceeds from issuance of new senior sub notes
    
    
    
    
    
    
    110,000
    
    
    
    
    Proceeds from issuance of new senior notes
    
    
    
    
    
    
    297,000
    
    
    
    
    Redemption of 8 5/8% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Redemption of 8 1/2% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (215,000
    )Payment of 2003 senior credit facility
    
    
    
    
    
    
    
    
    
    
    
    (55,290
    )Payments on long-term debt
    
    
    (3,943
    )
    
    
    (350
    )
    
    
    
    (334
    )Financing fees
    
    
    
    
    
    
    (28,857
    )
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (4,009
    )
    
    
    1,611,734
    
    
    
    
    38,633Effect of exchange rate on cash
    
    
    234
    
    
    
    139
    
    
    
    
    (165
    )Net increase (decrease) in cash
    
    
    26,928
    
    
    
    27,434
    
    
    
    
    (14,568
    )Beginning balance, cash
    
    
    28,854
    
    
    
    9,512
    
    
    
    
    24,080Ending balance, cash
    
    $
    55,782
    
    
    $
    36,946
    
    
    
    $
    9,512
  4




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 3. INVENTORIES, NET
  June 30, 2008Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)(unaudited)Finished product ready for sale
    
    $
    294,126
    
    
    $
    (8,351
    )
    
    $
    285,775Work-in-process, bulk product and raw materials
    
    
    52,956
    
    
    
    (1,274
    )
    
    
    51,682Packaging supplies
    
    
    4,617
    
    
    
    
    
    
    
    4,617$
    351,699
    
    
    $
    (9,625
    )
    
    $
    342,074
 December 31, 2007Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    287,430
    
    
    $
    (8,578
    )
    
    $
    278,852Work-in-process, bulk product and raw materials
    
    
    51,755
    
    
    
    (1,281
    )
    
    
    50,474Packaging supplies
    
    
    4,823
    
    
    
    
    
    
    
    4,823$
    344,008
    
    
    $
    (9,859
    )
    
    $
    334,149
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
    9




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    306,126
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,270Acquired franchise stores
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    150Balance at June 30, 2008 (unaudited)
    
    $
    306,276
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,420
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    6,041
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    165,702
    
    
    $
    1,129
    
    
    $
    892,872Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Amortization expense
    
    
    (2,010
    )
    
    
    
    
    
    
    
    
    
    
    (3,341
    )
    
    
    (381
    )
    
    
    (5,732
    )Balance at June 30, 2008 (unaudited)
    
    $
    4,031
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    162,361
    
    
    $
    787
    
    
    $
    887,179
  Estimated
    
    
    June 30, 2008
    
    
    December 31, 2007Life
    
    
    
    
    
    
    Accumulated
    
    
    Carrying
    
    
    
    
    
    
    Accumulated
    
    
    Carryingin years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)
    
    
    (in thousands)Brands  retail
    
    
    
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000Brands  franchise
    
    
    
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000Gold card  retail
    
    
    3
    
    
    
    3,500
    
    
    
    (1,933
    )
    
    
    1,567
    
    
    
    3,500
    
    
    
    (1,155
    )
    
    
    2,345Gold card  franchise
    
    
    3
    
    
    
    5,500
    
    
    
    (3,036
    )
    
    
    2,464
    
    
    
    5,500
    
    
    
    (1,804
    )
    
    
    3,696Retail agreements
    
    
    25-35
    
    
    
    31,000
    
    
    
    (1,511
    )
    
    
    29,489
    
    
    
    31,000
    
    
    
    (985
    )
    
    
    30,015Franchise agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (3,616
    )
    
    
    66,384
    
    
    
    70,000
    
    
    
    (2,217
    )
    
    
    67,783Manufacturing agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (3,617
    )
    
    
    66,383
    
    
    
    70,000
    
    
    
    (2,216
    )
    
    
    67,784Other intangibles
    
    
    1-5
    
    
    
    150
    
    
    
    (45
    )
    
    
    105
    
    
    
    150
    
    
    
    (30
    )
    
    
    120Franchise rights
    
    
    1-5
    
    
    
    1,952
    
    
    
    (1,165
    )
    
    
    787
    
    
    
    1,913
    
    
    
    (784
    )
    
    
    1,129$
    902,102
    
    
    $
    (14,923
    )
    
    $
    887,179
    
    
    $
    902,063
    
    
    $
    (9,191
    )
    
    $
    892,872
  EstimatedamortizationYears ending December 31,
    
    expense(in thousands)2008
    
    
    5,1912009
    
    
    9,0422010
    
    
    7,2122011
    
    
    6,7412012
    
    
    6,668Thereafter
    
    
    132,325Total
    
    $
    167,179
 10




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    666,563
    
    
    $
    669,937Senior Toggle Notes
    
    
    297,412
    
    
    
    297,24710.75% Senior Subordinated Notes
    
    
    110,000
    
    
    
    110,000Mortgage
    
    
    9,209
    
    
    
    9,774Capital leases
    
    
    45
    
    
    
    23Less: current maturities
    
    
    (8,065
    )
    
    
    (8,031
    )Total
    
    $
    1,075,164
    
    
    $
    1,078,950
  Successor
    
    
    
    PredecessorThree months ended
    
    
    Six months ended
    
    
    March 16-
    
    
    
    January 1-June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007(unaudited)(in thousands)2003 Senior Credit FacilityTerm Loan
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    918Revolver
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1328 5/8% Senior Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,8078 1/2 % Senior Subordinated Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,695Call premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,159Deferred financing fees
    
    
    982
    
    
    
    920
    
    
    
    1,923
    
    
    
    1,068
    
    
    
    
    589Deferred fee writedown- early
extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,6802007 Senior Credit FacilityTerm Loan
    
    
    10,046
    
    
    
    12,967
    
    
    
    21,942
    
    
    
    15,235
    
    
    
    
    Revolver
    
    
    106
    
    
    
    126
    
    
    
    217
    
    
    
    147
    
    
    
    
    Senior Toggle Notes
    
    
    5,400
    
    
    
    7,347
    
    
    
    12,532
    
    
    
    8,572
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    2,956
    
    
    
    2,956
    
    
    
    5,912
    
    
    
    3,449
    
    
    
    
    OID amortization
    
    
    84
    
    
    
    77
    
    
    
    165
    
    
    
    90
    
    
    
    
    Mortgage
    
    
    162
    
    
    
    125
    
    
    
    324
    
    
    
    158
    
    
    
    
    392Interest income-other
    
    
    (303
    )
    
    
    (884
    )
    
    
    (511
    )
    
    
    (847
    )
    
    
    
    (336
    )Interest expense, net
    
    $
    19,433
    
    
    $
    23,634
    
    
    $
    42,504
    
    
    $
    27,872
    
    
    
    $
    43,036
 11




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    5,469
    
    
    $
    5,787Senior Toggle Notes
    
    
    6,359
    
    
    
    8,84110.75% Senior Subordinated Notes
    
    
    3,482
    
    
    
    3,482Total
    
    $
    15,310
    
    
    $
    18,110
  12




---



##### Table of Contents



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




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
    
    Harry Rodriguez v. General Nutrition Companies, Inc.(previously pending in the Supreme
Court of the State of New York, New York County, New York, Index No. 02/126277 and currently
styled Harry Rodriguez, individually and on behalf of all others similarly situated, v.
General Nutrition Companies, Inc. Case No. 1:06-cv-02987-JSR, In the United States District Court for the Southern District of
New York). Plaintiffs filed this putative class action on or about July 25, 2002. The Second
Amended Complaint, filed thereafter on or about December 6, 2002, alleged claims for unjust
enrichment, violation of General Business Law Section 349 (misleading and deceptive trade
practices), and violation of General Business Law Section 350 (false advertising). On July 2,
2003, the court granted part of the GNC motion to dismiss and dismissed the unjust enrichment
cause of action. On January 4, 2006, the court conducted a hearing on the GNC motion for
summary judgment and plaintiffs motion for class certification, both of which remain pending.
    
    Everett Abrams v. General Nutrition Companies, Inc.(previously pending in the Superior
Court of New Jersey, Mercer County, New Jersey, Docket No. L-3789-02 and currently styled
Everett Abrams, individually and on behalf of all others similarly situated, v. General
Nutrition Companies, Inc., Case No. 1:06-cv-07881-JSR, In the United States District Court
for the Southern District of New York). Plaintiffs filed this putative class action on or
about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December 20,
2002, alleged claims for false and deceptive marketing and omissions and violations of the
New Jersey Consumer Fraud Act. On November 18, 2003, the court signed an order dismissing
plaintiffs claims for affirmative misrepresentation and sponsorship with prejudice. The
claim for knowing omissions remains pending.
    
    Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke Smith v. General Nutrition Companies,
Inc.(previously pending in the 15th Judicial Circuit Court, Palm Beach County,
Florida, Index. No. CA-02-14221AB and currently styled Shawn Brown, Ozan Cirak, Thomas
Hannon and Like Smith, each individually and on behalf of all others similarly situated v.
General Nutrition Companies, Inc.,Case No. 1:07-cv-06356-UA, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about November
27, 2002, alleged claims for violations of the Florida Deceptive and Unfair Trade Practices
Act, unjust enrichment, and violation of Florida Civil Remedies for Criminal Practices Act.
These claims remain pending.
    
    Andrew Toth v. General Nutrition Companies, Inc., et al.(previously pending in the
Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886 and
currently styled Andrew Toth and Richard Zatta, each individually and on behalf of all
others similarly situated v. Bodyonics, LTD, d/b/a Pinnacle and General Nutrition Companies,
Inc.,Case No. 1:06-cv-02721-JSR, In the United States District Court for the Southern
District of New York). Plaintiffs filed this putative class action on or about July 25,
2002. The Amended Complaint, filed thereafter on or about April 8, 2003, alleged claims for
violations of the Unfair Trade Practices and Consumer Protection Law, and unjust enrichment.
The court denied the plaintiffs motion for class certification, and that order has been
affirmed on appeal. Plaintiffs thereafter filed a petition in the Pennsylvania Supreme Court
asking that the court consider an appeal of the order denying class certification. The
Pennsylvania Supreme Court denied the petition after the case against GNC was removed as
described above. The Claims for the violations of the Unfair Trade Practices and Consumer
Protection Law and unjust enrichment remain pending.
    
    Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc.(previously pending on the
California Judicial Counsel Coordination Proceeding No. 4363, Los Angeles County Superior
Court). Plaintiffs filed this putative class action on or about February 17, 2004. The
Second Amended Complaint, filed on or about November 27, 2006, alleged claims for violations
of the Consumers Legal Remedies Act, violation of the Unfair Competition Act, and unjust
enrichment. Plaintiffs filed their Motion for Class Certification on February 13, 2008.
GNC filed its Motion opposing certification on March 12, 2008 and oral argument was heard on
June 10, 2008. The Court has not yet decided the Motion.
  14




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Wage and Hour Claim.
 California Wage and Break Claim
 Franchise Class Action.
 15




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Contingencies
  NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
   WeightedAverage
    
    AggregateTotal Options
    
    Exercise Price
    
    Intrinsic Value(in thousands)Outstanding at December 31, 2007
    
    
    6,714,492
    
    
    $
    6.25
    
    
    $
    6,479Granted
    
    
    1,750,000
    
    
    
    8.66Exercised
    
    
    (3,946
    )
    
    
    5.00Forfeited
    
    
    (176,854
    )
    
    
    6.25Outstanding at June 30, 2008
    
    
    8,283,692
    
    
    $
    6.76
    
    
    $
    6,305Exercisable at June 30, 2008
    
    
    1,373,555
    
    
    $
    6.25
    
    
    $
    1,325
    16




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  June 30,2008(unaudited)Dividend yield
    
    
    0.00%Expected option life
    
    7.5 yearsVolatility factor percentage of market price
    
    
    26.00%Discount rate
    
    
    3.54%
  Predecessor
   NOTE 8. SEGMENTS
  17




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Successor
    
    
    
    PredecessorSix months ended
    
    
    March 16 -
    
    
    
    January 1 -Three months ended June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007(in thousands)(unaudited)Revenue:Retail
    
    $
    314,506
    
    
    $
    295,890
    
    
    $
    635,801
    
    
    $
    341,240
    
    
    
    $
    259,313Franchise
    
    
    65,107
    
    
    
    59,959
    
    
    
    130,011
    
    
    
    71,517
    
    
    
    
    47,237Manufacturing/Wholesale:Intersegment (1)
    
    
    46,212
    
    
    
    39,160
    
    
    
    90,322
    
    
    
    47,899
    
    
    
    
    35,477Third Party
    
    
    43,049
    
    
    
    33,630
    
    
    
    84,983
    
    
    
    38,802
    
    
    
    
    23,279Sub total Manufacturing/Wholesale
    
    
    89,261
    
    
    
    72,790
    
    
    
    175,305
    
    
    
    86,701
    
    
    
    
    58,756Sub total segment revenues
    
    
    468,874
    
    
    
    428,639
    
    
    
    941,117
    
    
    
    499,458
    
    
    
    
    365,306Intersegment elimination (1)
    
    
    (46,212
    )
    
    
    (39,160
    )
    
    
    (90,322
    )
    
    
    (47,899
    )
    
    
    
    (35,477
    )Total revenue
    
    $
    422,662
    
    
    $
    389,479
    
    
    $
    850,795
    
    
    $
    451,559
    
    
    
    $
    329,829(1)Intersegment revenues are eliminated from consolidated revenue.Operating income (loss):Retail
    
    $
    42,233
    
    
    $
    33,540
    
    
    $
    79,050
    
    
    $
    38,829
    
    
    
    $
    28,249Franchise
    
    
    18,699
    
    
    
    15,485
    
    
    
    38,483
    
    
    
    18,434
    
    
    
    
    14,518Manufacturing/Wholesale
    
    
    17,325
    
    
    
    11,126
    
    
    
    33,063
    
    
    
    13,116
    
    
    
    
    10,267Unallocated corporate and other (costs) income:Warehousing and distribution costs
    
    
    (13,837
    )
    
    
    (12,516
    )
    
    
    (27,606
    )
    
    
    (14,552
    )
    
    
    
    (10,667
    )Corporate costs
    
    
    (17,441
    )
    
    
    (16,165
    )
    
    
    (31,503
    )
    
    
    (18,714
    )
    
    
    
    (26,739
    )Merger-related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,603
    )Sub total unallocated corporate and
other (costs) income
    
    
    (31,278
    )
    
    
    (28,681
    )
    
    
    (59,109
    )
    
    
    (33,266
    )
    
    
    
    (72,009
    )Total operating income (loss)
    
    $
    46,979
    
    
    $
    31,470
    
    
    $
    91,487
    
    
    $
    37,113
    
    
    
    $
    (18,975
    )
 18




---



##### Table of Contents



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




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorJune 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    53,578
    
    
    $
    2,204
    
    
    $
    
    
    
    $
    55,782Receivables, net
    
    
    316
    
    
    
    82,479
    
    
    
    407
    
    
    
    
    
    
    
    83,202Intercompany receivables
    
    
    
    
    
    
    87,782
    
    
    
    
    
    
    
    (87,782
    )
    
    
    Inventories, net
    
    
    
    
    
    
    318,134
    
    
    
    23,940
    
    
    
    
    
    
    
    342,074Prepaids and other current assets
    
    
    62
    
    
    
    41,999
    
    
    
    6,147
    
    
    
    
    
    
    
    48,208Total current assets
    
    
    378
    
    
    
    583,972
    
    
    
    32,698
    
    
    
    (87,782
    )
    
    
    529,266Goodwill
    
    
    
    
    
    
    626,019
    
    
    
    401
    
    
    
    
    
    
    
    626,420Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    
    
    
    
    172,022
    
    
    
    24,933
    
    
    
    
    
    
    
    196,955Investment in subsidiaries
    
    
    1,774,419
    
    
    
    11,392
    
    
    
    
    
    
    
    (1,785,811
    )
    
    
    Other assets
    
    
    24,453
    
    
    
    180,770
    
    
    
    
    
    
    
    (8,781
    )
    
    
    196,442Total assets
    
    $
    1,799,250
    
    
    $
    2,294,175
    
    
    $
    58,032
    
    
    $
    (1,882,374
    )
    
    $
    2,269,083Current liabilitiesCurrent liabilities
    
    $
    15,720
    
    
    $
    213,925
    
    
    $
    15,514
    
    
    $
    
    
    
    $
    245,159Intercompany payables
    
    
    73,578
    
    
    
    
    
    
    
    14,204
    
    
    
    (87,782
    )
    
    
    Total current liabilities
    
    
    89,298
    
    
    
    213,925
    
    
    
    29,718
    
    
    
    (87,782
    )
    
    
    245,159Long-term debt
    
    
    1,067,225
    
    
    
    34
    
    
    
    16,686
    
    
    
    (8,781
    )
    
    
    1,075,164Deferred tax liabilities
    
    
    (2,997
    )
    
    
    269,839
    
    
    
    
    
    
    
    
    
    
    
    266,842Other long-term liabilities
    
    
    8,233
    
    
    
    35,958
    
    
    
    236
    
    
    
    
    
    
    
    44,427Total liabilities
    
    
    1,161,759
    
    
    
    519,756
    
    
    
    46,640
    
    
    
    (96,563
    )
    
    
    1,631,592Total stockholders equity (deficit)
    
    
    637,491
    
    
    
    1,774,419
    
    
    
    11,392
    
    
    
    (1,785,811
    )
    
    
    637,491Total liabilities and stockholders
equity (deficit)
    
    $
    1,799,250
    
    
    $
    2,294,175
    
    
    $
    58,032
    
    
    $
    (1,882,374
    )
    
    $
    2,269,083
 20




---



##### Table of Contents



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




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended June 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    398,482
    
    
    $
    26,966
    
    
    $
    (2,786
    )
    
    $
    422,662Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    257,243
    
    
    
    19,820
    
    
    
    (2,786
    )
    
    
    274,277Gross profit
    
    
    
    
    
    
    141,239
    
    
    
    7,146
    
    
    
    
    
    
    
    148,385Compensation and related benefits
    
    
    
    
    
    
    58,936
    
    
    
    3,948
    
    
    
    
    
    
    
    62,884Advertising and promotion
    
    
    
    
    
    
    13,452
    
    
    
    188
    
    
    
    
    
    
    
    13,640Other selling, general and administrative
    
    
    493
    
    
    
    23,556
    
    
    
    862
    
    
    
    
    
    
    
    24,911Subsidiary (income) expense
    
    
    (17,985
    )
    
    
    (1,352
    )
    
    
    
    
    
    
    19,337
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (23
    )
    
    
    (6
    )
    
    
    
    
    
    
    (29
    )Operating income (loss)
    
    
    17,492
    
    
    
    46,670
    
    
    
    2,154
    
    
    
    (19,337
    )
    
    
    46,979Interest expense, net
    
    
    1,067
    
    
    
    18,046
    
    
    
    320
    
    
    
    
    
    
    
    19,433Income (loss) before income taxes
    
    
    16,425
    
    
    
    28,624
    
    
    
    1,834
    
    
    
    (19,337
    )
    
    
    27,546Income tax (benefit) expense
    
    
    (583
    )
    
    
    10,639
    
    
    
    482
    
    
    
    
    
    
    
    10,538Net income (loss)
    
    
    17,008
    
    
    $
    17,985
    
    
    $
    1,352
    
    
    $
    (19,337
    )
    
    $
    17,008
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorSix months ended June 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    803,003
    
    
    $
    53,524
    
    
    $
    (5,732
    )
    
    $
    850,795Cost of sales, including costs
of warehousing,
distribution and occupancy
    
    
    
    
    
    
    519,948
    
    
    
    38,951
    
    
    
    (5,732
    )
    
    
    553,167Gross profit
    
    
    
    
    
    
    283,055
    
    
    
    14,573
    
    
    
    
    
    
    
    297,628Compensation and related benefits
    
    
    
    
    
    
    116,666
    
    
    
    7,789
    
    
    
    
    
    
    
    124,455Advertising and promotion
    
    
    
    
    
    
    31,486
    
    
    
    301
    
    
    
    
    
    
    
    31,787Other
selling, general and administrative
    
    
    1,014
    
    
    
    47,091
    
    
    
    1,731
    
    
    
    
    
    
    
    49,836Subsidiary (income) expense
    
    
    (32,283
    )
    
    
    (2,275
    )
    
    
    
    
    
    
    34,558
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (38
    )
    
    
    101
    
    
    
    
    
    
    
    63Operating income (loss)
    
    
    31,269
    
    
    
    90,125
    
    
    
    4,651
    
    
    
    (34,558
    )
    
    
    91,487Interest expense, net
    
    
    2,086
    
    
    
    39,826
    
    
    
    592
    
    
    
    
    
    
    
    42,504Income (loss) before income taxes
    
    
    29,183
    
    
    
    50,299
    
    
    
    4,059
    
    
    
    (34,558
    )
    
    
    48,983Income tax (benefit) expense
    
    
    (1,165
    )
    
    
    18,016
    
    
    
    1,784
    
    
    
    
    
    
    
    18,635Net income (loss)
    
    $
    30,348
    
    
    $
    32,283
    
    
    $
    2,275
    
    
    $
    (34,558
    )
    
    $
    30,348
 22




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended June 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    370,130
    
    
    $
    22,648
    
    
    $
    (3,299
    )
    
    $
    389,479Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    247,257
    
    
    
    16,496
    
    
    
    (3,299
    )
    
    
    260,454Gross profit
    
    
    
    
    
    
    122,873
    
    
    
    6,152
    
    
    
    
    
    
    
    129,025Compensation and related benefits
    
    
    
    
    
    
    56,909
    
    
    
    3,513
    
    
    
    
    
    
    
    60,422Advertising and promotion
    
    
    
    
    
    
    14,116
    
    
    
    167
    
    
    
    
    
    
    
    14,283Other selling, general and administrative
    
    
    387
    
    
    
    21,967
    
    
    
    626
    
    
    
    
    
    
    
    22,980Subsidiary (income) expense
    
    
    (5,720
    )
    
    
    (1,149
    )
    
    
    
    
    
    
    6,869
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    (130
    )Operating income (loss)
    
    
    5,333
    
    
    
    31,030
    
    
    
    1,976
    
    
    
    (6,869
    )
    
    
    31,470Interest expense, net
    
    
    997
    
    
    
    22,534
    
    
    
    103
    
    
    
    
    
    
    
    23,634Income (loss) before income taxes
    
    
    4,336
    
    
    
    8,496
    
    
    
    1,873
    
    
    
    (6,869
    )
    
    
    7,836Income tax (benefit) expense
    
    
    (403
    )
    
    
    2,776
    
    
    
    724
    
    
    
    
    
    
    
    3,097Net income (loss)
    
    $
    4,739
    
    
    $
    5,720
    
    
    $
    1,149
    
    
    $
    (6,869
    )
    
    $
    4,739
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to June 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    428,937
    
    
    $
    26,504
    
    
    $
    (3,882
    )
    
    $
    451,559Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    288,019
    
    
    
    19,093
    
    
    
    (3,882
    )
    
    
    303,230Gross profit
    
    
    
    
    
    
    140,918
    
    
    
    7,411
    
    
    
    
    
    
    
    148,329Compensation and related benefits
    
    
    
    
    
    
    66,433
    
    
    
    4,048
    
    
    
    
    
    
    
    70,481Advertising and promotion
    
    
    
    
    
    
    14,293
    
    
    
    219
    
    
    
    
    
    
    
    14,512Other selling, general and administrative
    
    
    387
    
    
    
    25,174
    
    
    
    792
    
    
    
    
    
    
    
    26,353Subsidiary (income) expense
    
    
    (9,231
    )
    
    
    (1,341
    )
    
    
    
    
    
    
    10,572
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    (130
    )Operating income (loss)
    
    
    8,844
    
    
    
    36,359
    
    
    
    2,482
    
    
    
    (10,572
    )
    
    
    37,113Interest expense, net
    
    
    5,164
    
    
    
    22,488
    
    
    
    220
    
    
    
    
    
    
    
    27,872Income (loss) before income taxes
    
    
    3,680
    
    
    
    13,871
    
    
    
    2,262
    
    
    
    (10,572
    )
    
    
    9,241Income tax (benefit) expense
    
    
    (1,923
    )
    
    
    4,640
    
    
    
    921
    
    
    
    
    
    
    
    3,638Net income (loss)
    
    $
    5,603
    
    
    $
    9,231
    
    
    $
    1,341
    
    
    $
    (10,572
    )
    
    $
    5,603
 23




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 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
    )
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorSix months ended June 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    50,929
    
    
    $
    1,085
    
    
    $
    52,014CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (19,894
    )
    
    
    (1,311
    )
    
    
    (21,205
    )Investment/distribution
    
    
    4,188
    
    
    
    (4,188
    )
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (106
    )
    
    
    
    
    
    
    (106
    )Net cash provided by (used in) investing activities
    
    
    4,188
    
    
    
    (24,188
    )
    
    
    (1,311
    )
    
    
    (21,311
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    (813
    )
    
    
    
    
    
    
    
    
    
    
    (813
    )Other financing
    
    
    (3,375
    )
    
    
    747
    
    
    
    (568
    )
    
    
    (3,196
    )Net cash provided by (used in) financing activities
    
    
    (4,188
    )
    
    
    747
    
    
    
    (568
    )
    
    
    (4,009
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    234
    
    
    
    234Net increase (decrease) in cash
    
    
    
    
    
    
    27,488
    
    
    
    (560
    )
    
    
    26,928Beginning balance, cash
    
    
    
    
    
    
    26,090
    
    
    
    2,764
    
    
    
    28,854Ending balance, cash
    
    $
    
    
    
    $
    53,578
    
    
    $
    2,204
    
    
    $
    55,782
 24




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to June 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    $
    (730
    )
    
    $
    40,199
    
    
    $
    1,678
    
    
    $
    41,147CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (9,277
    )
    
    
    (290
    )
    
    
    (9,567
    )Investment/distribution
    
    
    9,429
    
    
    
    (9,429
    )
    
    
    
    
    
    
    Acquisition of the Company
    
    
    (1,615,934
    )
    
    
    
    
    
    
    
    
    
    
    (1,615,934
    )Other investing
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    (85
    )Net cash used in investing activities
    
    
    (1,606,505
    )
    
    
    (18,791
    )
    
    
    (290
    )
    
    
    (1,625,586
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    1,801
    
    
    
    
    
    
    
    
    
    
    
    1,801Issuance 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
    
    
    (28,857
    )
    
    
    
    
    
    
    
    
    
    
    (28,857
    )Other financing
    
    
    
    
    
    
    4,849
    
    
    
    (350
    )
    
    
    4,499Net cash provided by (used in) financing activities
    
    
    1,607,235
    
    
    
    4,849
    
    
    
    (350
    )
    
    
    1,611,734Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    139Net increase in cash
    
    
    
    
    
    
    26,257
    
    
    
    1,177
    
    
    
    27,434Beginning balance, cash
    
    
    
    
    
    
    7,559
    
    
    
    1,953
    
    
    
    9,512Ending balance, cash
    
    $
    
    
    
    $
    33,816
    
    
    $
    3,130
    
    
    $
    36,946
 25




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 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 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 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
 26




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 10. INCOME TAXES
   NOTE 11. FAIR VALUE MEASUREMENT
  Level 1 
    
    observable inputs such as quoted prices in active markets for identical
assets and liabilities;
 Level 2 
    
    observable inputs such as quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, other inputs that are observable, or can be corroborated
by observable market data; and
 Level 3 
    
    unobservable inputs for which there are little or no market data, which
require the reporting entity to develop its own assumptions.
  Fair Value Measurements UsingLevel 1
    
    Level 2
    
    Level 3(in thousands)Other long-term liabilities
    
    $
    2,159
    
    
    $
    8,233
    
    
    $
    
 27




---



##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Other long-term liabilities
  NOTE 12. RELATED PARTY TRANSACTIONS
 Successor:
 Management
Services Agreement.
 Credit Facility.
 Predecessor:
 Management Service Fees.
 28




---



##### 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.
   29




---



##### Table of Contents



Business Overview
  Revenues and Operating Performance from our Business Segments
  
    
    Retail revenues are generated by sales to consumers at our company-owned stores and
through www.gnc.com. Although we believe that our retail and franchise businesses are not
seasonal in nature, historically we have experienced, and expect to continue to
experience, a substantial variation in our net sales and operating results from quarter
to quarter, with the first half of the year being stronger than the second half of the
year. According to Nutrition Business Journals Supplement Business Report 2007, our
industry is projected to grow at an average annual rate of 4% for the next five years due
in part to favorable demographics, including an aging U.S. population, rising healthcare
costs, and the desire by many to live longer, healthier lives. As a leader in our
industry, we expect our retail revenues to grow at or above the projected industry growth
rate as a result of our disproportionate market share, scale economies in purchasing and
advertising, strong brand awareness, and vertical integration.
    
    Franchise revenues are generated primarily from:
 (1)
    
    product sales to our franchisees;(2)
    
    royalties on franchise retail sales; and(3)
    
    franchise fees, which are charged for initial franchise awards, renewals, and
transfers of franchises.
  
    
    Manufacturing/wholesale revenues are generated through sales of manufactured
products to third parties, generally for third-party private label brands, and the sale
of our proprietary and third-party products to and through Rite Aid and drugstore.com.
While revenues generated through our strategic alliance with Rite Aid do not represent a
substantial component of our business, we believe that sales of our products to and
through Rite Aid will continue to grow in accordance with our projected retail revenue
growth. Our revenues generated by our manufacturing and wholesale operations are subject
to our available manufacturing capacity, and we anticipate that these revenues will
remain stable over the next five years.
    
    A significant portion of our business infrastructure is comprised of fixed
operating costs. Our vertically integrated distribution network and manufacturing
capacity can support higher sales volume without adding significant incremental costs. We
therefore expect our operating expenses to grow at a lesser rate than our revenues,
resulting in significant operating leverage in our business.
 30




---



##### 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
           31




---



##### Table of Contents



Related Parties
  Results of Operations
     32




---



##### Table of Contents



Results of Operations
 Successor
    
    
    Combined
    
    
    Predecessor
    
    
    SuccessorJanuary 1 -
    
    
    March 16 -Three Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    March 15,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007Revenues:Retail
    
    $
    314.5
    
    
    
    74.4
    %
    
    $
    295.9
    
    
    
    76.0
    %
    
    $
    635.8
    
    
    
    74.7
    %
    
    $
    600.6
    
    
    
    76.9
    %
    
    $
    259.3
    
    
    
    341.3Franchise
    
    
    65.1
    
    
    
    15.4
    %
    
    
    60.0
    
    
    
    15.4
    %
    
    
    130.0
    
    
    
    15.3
    %
    
    
    118.7
    
    
    
    15.2
    %
    
    
    47.2
    
    
    
    71.5Manufacturing / Wholesale
    
    
    43.1
    
    
    
    10.2
    %
    
    
    33.6
    
    
    
    8.6
    %
    
    
    85.0
    
    
    
    10.0
    %
    
    
    62.1
    
    
    
    7.9
    %
    
    
    23.3
    
    
    
    38.8Total net revenues
    
    
    422.7
    
    
    
    100.0
    %
    
    
    389.5
    
    
    
    100.0
    %
    
    
    850.8
    
    
    
    100.0
    %
    
    
    781.4
    
    
    
    100.0
    %
    
    
    329.8
    
    
    
    451.6Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    274.3
    
    
    
    64.9
    %
    
    
    260.5
    
    
    
    66.9
    %
    
    
    553.2
    
    
    
    65.0
    %
    
    
    515.5
    
    
    
    66.0
    %
    
    
    212.2
    
    
    
    303.3Compensation and related benefits
    
    
    62.9
    
    
    
    14.9
    %
    
    
    60.4
    
    
    
    15.5
    %
    
    
    124.5
    
    
    
    14.6
    %
    
    
    134.8
    
    
    
    17.3
    %
    
    
    64.3
    
    
    
    70.5Advertising and promotion
    
    
    13.6
    
    
    
    3.2
    %
    
    
    14.3
    
    
    
    3.7
    %
    
    
    31.7
    
    
    
    3.7
    %
    
    
    35.0
    
    
    
    4.5
    %
    
    
    20.5
    
    
    
    14.5Other selling, general and administrative
expenses
    
    
    22.3
    
    
    
    5.3
    %
    
    
    20.6
    
    
    
    5.3
    %
    
    
    44.1
    
    
    
    5.2
    %
    
    
    40.1
    
    
    
    5.1
    %
    
    
    16.5
    
    
    
    23.6Amortization expense
    
    
    2.6
    
    
    
    0.6
    %
    
    
    2.4
    
    
    
    0.5
    %
    
    
    5.7
    
    
    
    0.7
    %
    
    
    3.6
    
    
    
    0.5
    %
    
    
    0.8
    
    
    
    2.7Foreign currency loss (gain)
    
    
    
    
    
    
    0.0
    %
    
    
    (0.1
    )
    
    
    0.0
    %
    
    
    0.1
    
    
    
    0.0
    %
    
    
    (0.3
    )
    
    
    0.0
    %
    
    
    (0.1
    )
    
    
    (0.1
    )Transaction related costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    34.6
    
    
    
    4.4
    %
    
    
    34.6
    
    
    
    Total operating expenses
    
    
    375.7
    
    
    
    88.9
    %
    
    
    358.1
    
    
    
    91.9
    %
    
    
    759.3
    
    
    
    89.2
    %
    
    
    763.3
    
    
    
    97.8
    %
    
    
    348.8
    
    
    
    414.5Operating income:Retail
    
    
    42.2
    
    
    
    10.0
    %
    
    
    33.5
    
    
    
    8.6
    %
    
    
    79.0
    
    
    
    9.3
    %
    
    
    67.1
    
    
    
    8.5
    %
    
    
    28.2
    
    
    
    38.9Franchise
    
    
    18.7
    
    
    
    4.4
    %
    
    
    15.5
    
    
    
    4.0
    %
    
    
    38.5
    
    
    
    4.5
    %
    
    
    32.9
    
    
    
    4.2
    %
    
    
    14.5
    
    
    
    18.4Manufacturing / Wholesale
    
    
    17.3
    
    
    
    4.1
    %
    
    
    11.1
    
    
    
    2.9
    %
    
    
    33.1
    
    
    
    3.9
    %
    
    
    23.4
    
    
    
    3.0
    %
    
    
    10.3
    
    
    
    13.1Unallocated corporate and other
costs:Warehousing and distribution costs
    
    
    (13.8
    )
    
    
    -3.3
    %
    
    
    (12.5
    )
    
    
    -3.2
    %
    
    
    (27.6
    )
    
    
    -3.2
    %
    
    
    (25.2
    )
    
    
    -3.2
    %
    
    
    (10.7
    )
    
    
    (14.5
    )Corporate costs
    
    
    (17.4
    )
    
    
    -4.1
    %
    
    
    (16.2
    )
    
    
    -4.2
    %
    
    
    (31.5
    )
    
    
    -3.7
    %
    
    
    (45.5
    )
    
    
    -5.9
    %
    
    
    (26.7
    )
    
    
    (18.8
    )Merger related costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (34.6
    )
    
    
    -4.4
    %
    
    
    (34.6
    )
    
    
    Subtotal unallocated corporate and
other costs, net
    
    
    (31.2
    )
    
    
    -7.4
    %
    
    
    (28.7
    )
    
    
    -7.4
    %
    
    
    (59.1
    )
    
    
    -6.9
    %
    
    
    (105.3
    )
    
    
    -13.5
    %
    
    
    (72.0
    )
    
    
    (33.3
    )Total operating income (loss)
    
    
    47.0
    
    
    
    11.1
    %
    
    
    31.4
    
    
    
    8.1
    %
    
    
    91.5
    
    
    
    10.8
    %
    
    
    18.1
    
    
    
    2.2
    %
    
    
    (19.0
    )
    
    
    37.1Interest expense, net
    
    
    19.4
    
    
    
    
    
    
    
    23.6
    
    
    
    
    
    
    
    42.5
    
    
    
    
    
    
    
    70.9
    
    
    
    
    
    
    
    43.0
    
    
    
    27.9Income (loss) before income taxes
    
    
    27.6
    
    
    
    
    
    
    
    7.8
    
    
    
    
    
    
    
    49.0
    
    
    
    
    
    
    
    (52.8
    )
    
    
    
    
    
    
    (62.0
    )
    
    
    9.2Income tax expense (benefit)
    
    
    10.6
    
    
    
    
    
    
    
    3.1
    
    
    
    
    
    
    
    18.7
    
    
    
    
    
    
    
    (7.1
    )
    
    
    
    
    
    
    (10.7
    )
    
    
    3.6Net income (loss)
    
    $
    17.0
    
    
    
    
    
    
    $
    4.7
    
    
    
    
    
    
    $
    30.3
    
    
    
    
    
    
    $
    (45.7
    )
    
    
    
    
    
    $
    (51.3
    )
    
    $
    5.6
 Note:
 33




---



##### Table of Contents



Comparison of the Three Months Ended June 30, 2008 and 2007
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 Occupancy costs.
 34




---



##### Table of Contents



Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Foreign Currency (Loss) Gain
  Operating Income
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 35




---



##### Table of Contents



Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  Comparison of the Six Months Ended June 30, 2008 and 2007
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 36




---



##### Table of Contents



Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 Occupancy costs.
 Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 37




---



##### Table of Contents



Merger-related Costs
  Foreign Currency (Loss) Gain
  Operating Income
   Retail.
 Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 38




---



##### Table of Contents



Interest Expense
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
    Successor
    
    Combined
    
    Predecessor
    
    SuccessorSix months
    
    Six months
    
    Period
    
    Period fromended June 30,
    
    ended June 30,
    
    ended March 15,
    
    March 16 to June 30,(Dollars in millions)
    
    2008
    
    2007
    
    2007
    
    2007Cash provided by (used in) operating activities
    
    $
    52.0
    
    
    $
    (5.7
    )
    
    $
    (46.8
    )
    
    $
    41.1Cash used in investing activities
    
    
    (21.3
    )
    
    
    (1,631.8
    )
    
    
    (6.2
    )
    
    
    (1,625.6
    )Cash (used in) provided by financing activities
    
    
    (4.0
    )
    
    
    1,650.3
    
    
    
    38.6
    
    
    
    1,611.7
 Cash Provided by Operating Activities
  39




---



##### Table of Contents



Cash Used in Investing Activities
   Cash Used in Financing Activities
   $735.0 Million 2007 Senior Credit Facility
 Senior Toggle Notes
 10.75% Senior Subordinated Notes
 Contractual Obligations
  40




---



##### Table of Contents



Off Balance Sheet Arrangements
   Effect of Inflation
  Critical Accounting Estimates
  Recently Issued Accounting Pronouncements
  .
 41




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
    Derivative
    
    Total Notional Amount
    
    Term
    
    Counterparty Pays
    
    Company PaysInterest Rate Swap
    
    $150.0 million
    
    April 2007-April 2010
    
    LIBOR + 225 basis points
    
    
    4.8965
    %Interest Rate Swap
    
    $150.0 million
    
    April 2007-April 2009
    
    LIBOR + 225 basis points
    
    
    4.9430
    %
  42




---



##### Table of Contents



Item 4T. Controls and Procedures.
   43




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   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
 44




---



##### Table of Contents



Law Section 350 (false advertising). On July 2, 2003, the court granted part of the GNC motion
to dismiss and dismissed the unjust enrichment cause of action. On January 4, 2006, the court
conducted a hearing on the GNC motion for summary judgment and plaintiffs motion for class
certification, both of which remain pending.
 
    
    Everett Abrams v. General Nutrition Companies, Inc.(previously pending in the Superior
Court of New Jersey, Mercer County, New Jersey, Docket No. L-3789-02 and currently styled
Everett Abrams, individually and on behalf of all others similarly situated, v. General
Nutrition Companies, Inc., Case No. 1:06-cv-07881-JSR, In the United States District Court
for the Southern District of New York). Plaintiffs filed this putative class action on or
about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December 20,
2002, alleged claims for false and deceptive marketing and omissions and violations of the
New Jersey Consumer Fraud Act. On November 18, 2003, the court signed an order dismissing
plaintiffs claims for affirmative misrepresentation and sponsorship with prejudice. The
claim for knowing omissions remains pending.
    
    Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke Smith v. General Nutrition Companies,
Inc.(previously pending in the 15th Judicial Circuit Court, Palm Beach County,
Florida, Index. No. CA-02-14221AB and currently styled Shawn Brown, Ozan Cirak, Thomas
Hannon and Like Smith, each individually and on behalf of all others similarly situated v.
General Nutrition Companies, Inc.,Case No. 1:07-cv-06356-UA, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about November
27, 2002, alleged claims for violations of the Florida Deceptive and Unfair Trade Practices
Act, unjust enrichment, and violation of Florida Civil Remedies for Criminal Practices Act.
These claims remain pending.
    
    Andrew Toth v. General Nutrition Companies, Inc., et al.(previously pending in the
Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886 and
currently styled Andrew Toth and Richard Zatta, each individually and on behalf of all
others similarly situated v. Bodyonics, LTD, d/b/a Pinnacle and General Nutrition Companies,
Inc.,Case No. 1:06-cv-02721-JSR, In the United States District Court for the Southern
District of New York). Plaintiffs filed this putative class action on or about July 25,
2002. The Amended Complaint, filed thereafter on or about April 8, 2003, alleged claims for
violations of the Unfair Trade Practices and Consumer Protection Law, and unjust enrichment.
The court denied the plaintiffs motion for class certification, and that order has been
affirmed on appeal. Plaintiffs thereafter filed a petition in the Pennsylvania Supreme Court
asking that the court consider an appeal of the order denying class certification. The
Pennsylvania Supreme Court denied the petition after the case against GNC was removed as
described above. The Claims for the violations of the Unfair Trade Practices and Consumer
Protection Law and unjust enrichment remain pending.
    
    Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc.(previously pending on the
California Judicial Counsel Coordination Proceeding No. 4363, Los Angeles County Superior
Court). Plaintiffs filed this putative class action on or about February 17, 2004. The
Second Amended Complaint, filed on or about November 27, 2006, alleged claims for violations
of the Consumers Legal Remedies Act, violation of the Unfair Competition Act, and unjust
enrichment. These claims remain pending. Plaintiffs filed their Motion for Class
Certification on February 13, 2008. GNC filed its Motion opposing certification on March
12, 2008 and oral argument was heard on June 10, 2008. The Court has not yet decided the
Motion.
   45




---



##### Table of Contents



Wage and Hour Claim.
 California Wage and Break Claim
 Franchise Class Action.
 46




---



##### Table of Contents



Item 1A. Risk Factors.
  Risks Relating to Our Business and Industry
 We operate in a highly competitive industry. Our failure to compete effectively could adversely
affect our market share, revenues, and growth prospects.
  Unfavorable publicity or consumer perception of our products and any similar products distributed
by other companies could cause fluctuations in our operating results and could have a material
adverse effect on our reputation, the demand for our products, and our ability to generate
revenues.
  Our failure to appropriately respond to changing consumer preferences and demand for new products
could significantly harm our customer relationships and product sales.
  47




---



##### Table of Contents




    
    accurately anticipate customer needs;
    
    innovate and develop new products;
    
    successfully commercialize new products in a timely manner;
    
    price our products competitively;
    
    manufacture and deliver our products in sufficient volumes and in a timely manner; and
    
    differentiate our product offerings from those of our competitors.
  We depend on the services of key executives and changes in our management team could affect our
business strategy and adversely impact our performance and results of operations.
   48




---



##### Table of Contents



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.
  49




---



##### Table of Contents



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.
  50




---



##### Table of Contents



Intellectual property litigation and infringement claims against us could cause us to incur
significant expenses or prevent us from manufacturing, selling, or using some aspect of our
products, which could adversely affect our revenues and market share.
  A substantial amount of our revenues are generated from our franchisees, and our revenues could
decrease significantly if our franchisees do not conduct their operations profitably or if we
fail to attract new franchisees.
   Economic, political, and other risks associated with our international operations could adversely
affect our revenues and international growth prospects.
  
    
    political and economic instability of foreign markets;
    
    foreign governments restrictive trade policies;
    
    inconsistent product regulation or sudden policy changes by foreign agencies or governments;
    
    the imposition of, or increase in, duties, taxes, government royalties, or non-tariff trade
barriers;
    
    difficulty in collecting international accounts receivable and potentially longer payment
cycles;
    
    increased costs in maintaining international franchise and marketing efforts;
    
    difficulty in operating our manufacturing facility abroad and procuring supplies from
overseas suppliers;
    
    exchange controls;
    
    problems entering international markets with different cultural bases and consumer
preferences; and
 51




---



##### Table of Contents




    
    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.
  52




---



##### Table of Contents



Risks Related to Our Substantial Debt
 Our substantial debt could adversely affect our results of operations and financial condition and
otherwise adversely impact our operating income and growth prospects.
    
    
    make it more difficult for us to satisfy our obligations with respect to the Senior
Toggle Notes and the 10.75% Senior Subordinated Notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to use all or a large portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the availability of our cash flow to
fund working capital, research and development efforts, capital expenditures, and other
business activities;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate;
    
    restrict us from making strategic acquisitions or exploiting business
opportunities;
    
    place us at a competitive disadvantage compared to our competitors that have less
debt; and
    
    limit our ability to borrow additional funds, dispose of assets, or pay cash
dividends.
  Despite our current significant level of debt, we may still be able to incur additional debt,
which could increase the risks described above, adversely affect our financial health, or prevent
us from fulfilling our obligations under the Senior Toggle Notes and the 10.75% Senior
Subordinated Notes.
  We require a significant amount of cash to service our debt. Our ability to generate cash depends
on many factors beyond our control and, as a result, we may not be able to make payments on our
debt obligations.
  53




---



##### Table of Contents



We may not have the ability to raise the funds necessary to finance the change of control offer
required by the indentures, which could cause us to default on our debt obligations, including
the Senior Toggle Notes and the 10.75% Senior Subordinated Notes.
  Restrictions in the agreements governing our existing indebtedness may prevent us from taking
actions that we believe would be in the best interest of our business.
  
    
    incurring additional indebtedness and issuing preferred stock;
    
    granting liens on our assets;
    
    making investments;
    
    consolidating or merging with, or acquiring, another business;
    
    selling or otherwise disposing our assets;
    
    paying dividends and making other distributions to GNC Parent LLC or GNC
Corporation; and
    
    entering into transactions with our affiliates.
   54




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 ExhibitNo.
    
    Description10.1
    
    Employment Agreement, dated as of May 27, 2008, by and between General Nutrition Centers, Inc.
and Michael Locke31.1
    
    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.
 55




---



##### Table of Contents



SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)August 7, 2008
    
    /s/ Joseph M. Fortunato
Joseph M. Fortunato
Chief Executive Officer
(Principal Executive Officer)August 7, 2008
    
    /s/ J. Kenneth Fox
J. Kenneth Fox
Interim Chief Financial Officer
(Principal Financial Officer)
 56