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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

or

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: 333-134983-02

VS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 11-3664322                       
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)

2101 91st Street

North Bergen, New Jersey 07047

(Addresses of Principal Executive Offices,
including Zip Code)

(800) 223-1216

(Registrants Telephone Number, Including Area Code)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes ̈No  x

As of August 14, 2007, VS Holdings, Inc. had no shares of preferred stock Series A shares outstanding and 100 shares of common stock outstanding.

VS Parent, Inc. owns 100% of the registrants equity.



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FORWARD LOOKING STATEMENTS

Statements in this document that are not historical facts are hereby identified as forward looking statements for the purposes of the safe
harbor provided by Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) and Section 27A of the Securities Act of 1933 (the Securities Act). VS Holdings, Inc. (Holdings), Vitamin Shoppe
Industries Inc. (VSI) and VS Direct Inc. (Direct, and, together with Holdings and VSI, the Company, we, us or our) caution readers that such forward looking
statements, including without limitation, those relating to the Companys future business prospects, results from acquisitions, revenue, working capital, liquidity, capital needs, leverage levels, interest costs and income, wherever they
occur in this document or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Companys senior management and involve a number of risks and uncertainties that could cause the Companys
actual results to differ materially from those suggested by the forward looking statements. You can identify these statements by forward-looking words such as expect, intend, anticipate,
plan, believe, seek, estimate, outlook, trends, future benefits, strategies, goals and similar words. Such forward looking
statements should, therefore, be considered in light of the factors set forth in Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations.

The forward looking statements contained in this report are made under the captions Managements Discussion and Analysis of
Financial Condition and Results of Operations, and Other Information. Moreover, the Company, through its senior management, may from time to time make forward looking statements about matters described herein or other
matters concerning the Company. You should consider our forward-looking statements in light of the risks and uncertainties that could cause the Companys actual results to differ materially from those which are managements current
expectations or forecasts. These risks and uncertainties include, but are not limited to, industry based factors such as the level of competition in the vitamin, mineral and supplement (VMS) industry, continued demand from the primary
markets the Company serves, the availability of raw materials, as well as factors more specific to the Company such as restrictions imposed by the Companys debt including financial covenants and limitations on the Companys ability to
incur additional indebtedness, the Companys future capital requirements, and risk associated with economic conditions generally. See Item 1A  Risk Factors in the Companys annual report on Form 10-K, filed on
March 30, 2007 with the Securities and Exchange Commission, for further discussion.

The Company disclaims any intent or obligation to
update forward looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.



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TABLE OF CONTENTS



|                      |  |                                                                                                                                           |  |        
|--------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|                      |  |                                                                                                                                           |  | PageNo.
|                      |  | PART I FINANCIAL INFORMATION                                                                                                              |  |        
|                      |  |                                                                                                                                          
|Item 1.               |  | Financial Statements                                                                                                                      |  |        
|                      |  | Condensed Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 30, 2006 (unaudited)                                   |  | 4      
|                      |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2007 (unaudited) and July 1, 2006 (unaudited) |  | 5      
|                      |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 (unaudited) and July 1, 2006 (unaudited)           |  | 6      
|                      |  | Condensed Consolidated Statement of Stockholders Equity for the six months ended June 30, 2007 (unaudited)                               |  | 7      
|                      |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                          |  | 8      
|Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                     |  | 24     
|Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                |  | 37     
|Item 4.               |  | Controls and Procedures                                                                                                                   |  | 37     
|                      |  |                                                                                                                                          
|                      |  | PART II OTHER INFORMATION                                                                                                                 |  |        
|                      |  |                                                                                                                                          
|Item 1.               |  | Legal Proceedings                                                                                                                         |  | 38     
|Item 1A.              |  | Risk Factors                                                                                                                              |  | 38     
|Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                               |  | 38     
|Item 3.               |  | Defaults Upon Senior Securities                                                                                                           |  | 38     
|Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                       |  | 38     
|Item 5.               |  | Other Information                                                                                                                         |  | 38     
|Item 6.               |  | Exhibits                                                                                                                                  |  | 38     
|Signatures            |  | 39                                                                                                                                       
|Certification EX-31.1 |  |                                                                                                                                          
|Certification EX-31.2 |  |                                                                                                                                          
|Certification EX-32.1 |  |                                                                                                                                          
|Certification EX-32.2 |  |                                                                                                                                          



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



|                                                                                                                                 |  |              |         |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---------------- | - | ------- | -
|                                                                                                                                 |  | June 30,2007 |         | December 30,2006 |  
|ASSETS                                                                                                                           |  |              |         |                  |   |         |  
|Current assets:                                                                                                                  |  |              |         |                  |   |         |  
|Cash and cash equivalents                                                                                                        |  | $            | 1,594   |                  | $ | 1,472   |  
|Inventories                                                                                                                      |  |              | 85,725  |                  |   | 82,175  |  
|Prepaid expenses and other current assets                                                                                        |  |              | 9,811   |                  |   | 11,061  |  
|Deferred income taxes                                                                                                            |  |              | 631     |                  |   | 2,001   |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total current assets                                                                                                             |  |              | 97,761  |                  |   | 96,709  |  
|Property and equipment, net                                                                                                      |  |              | 60,739  |                  |   | 61,931  |  
|Goodwill                                                                                                                         |  |              | 177,248 |                  |   | 175,896 |  
|Other intangibles, net                                                                                                           |  |              | 68,205  |                  |   | 68,205  |  
|Other assets:                                                                                                                    |  |              |         |                  |   |         |  
|Deferred financing fees, net of accumulated amortization of $1,786 and $1,206 in 2007 and 2006, respectively                     |  |              | 5,802   |                  |   | 6,382   |  
|Other                                                                                                                            |  |              | 1,567   |                  |   | 895     |  
|Security deposits                                                                                                                |  |              | 1,548   |                  |   | 1,602   |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total other assets                                                                                                               |  |              | 8,917   |                  |   | 8,879   |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total assets                                                                                                                     |  | $            | 412,870 |                  | $ | 411,620 |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                             |  |              |         |                  |   |         |  
|Current liabilities:                                                                                                             |  |              |         |                  |   |         |  
|Revolving credit facility                                                                                                        |  | $            | 6,500   |                  | $ | 6,500   |  
|Accounts payable                                                                                                                 |  |              | 22,857  |                  |   | 26,672  |  
|Deferred sales                                                                                                                   |  |              | 6,237   |                  |   | 11,475  |  
|Accrued salaries and related expenses                                                                                            |  |              | 3,151   |                  |   | 4,330   |  
|Accrued interest                                                                                                                 |  |              | 2,672   |                  |   | 2,624   |  
|Other accrued expenses                                                                                                           |  |              | 8,934   |                  |   | 6,822   |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total current liabilities                                                                                                        |  |              | 50,351  |                  |   | 58,423  |  
|Long-term debt                                                                                                                   |  |              | 165,000 |                  |   | 165,000 |  
|Deferred income taxes                                                                                                            |  |              | 21,286  |                  |   | 20,244  |  
|Other long-term liabilities (see Note 12)                                                                                        |  |              | 2,150   |                  |   |        |  
|Deferred rent                                                                                                                    |  |              | 15,688  |                  |   | 14,447  |  
|Stockholders equity:                                                                                                            |  |              |         |                  |   |         |  
|Common stock, $0.01 par value; 1,000 shares authorized, 100 shares issued and outstanding at June 30, 2007 and December 30, 2006 |  |              |        |                  |   |        |  
|Additional paid-in capital                                                                                                       |  |              | 156,233 |                  |   | 155,642 |  
|Accumulated other comprehensive income                                                                                           |  |              | 856     |                  |   | 478     |  
|Retained earnings (accumulated deficit)                                                                                          |  |              | 1,306   |                  |   | (2,614  | )
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total stockholders equity                                                                                                       |  |              | 158,395 |                  |   | 153,506 |  
|                                                                                                                                 |  |              |         |                  |   |         |  
|Total liabilities and stockholders equity                                                                                       |  | $            | 412,870 |                  | $ | 411,620 |  
|                                                                                                                                 |  |              |         |                  |   |         |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)



|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                             |  | Three Months Ended |         |   | Six Months Ended |  
|                                             |  | June 30,2007       |         |   | July 1,2006      |   |         | June 30,2007 |  |   | July 1,2006 |  
|Net sales                                    |  | $                  | 133,422 |   |                  | $ | 118,414 |              |  | $ | 270,966     |   |  | $ | 245,714 |  
|Cost of goods sold                           |  |                    | 90,166  |   |                  |   | 78,948  |              |  |   | 180,736     |   |  |   | 163,559 |  
|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Gross profit                                 |  |                    | 43,256  |   |                  |   | 39,466  |              |  |   | 90,230      |   |  |   | 82,155  |  
|Selling, general and administrative expenses |  |                    | 36,115  |   |                  |   | 32,663  |              |  |   | 72,023      |   |  |   | 66,107  |  
|Related party expenses (see Note 10)         |  |                    | 356     |   |                  |   | 353     |              |  |   | 669         |   |  |   | 693     |  
|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Income from operations                       |  |                    | 6,785   |   |                  |   | 6,450   |              |  |   | 17,538      |   |  |   | 15,355  |  
|Other                                        |  |                    |        |   |                  |   |        |              |  |   |            |   |  |   | (366    | )
|Interest income                              |  |                    | (48     | ) |                  |   | (84     | )            |  |   | (103        | ) |  |   | (221    | )
|Interest expense                             |  |                    | 5,642   |   |                  |   | 5,578   |              |  |   | 11,147      |   |  |   | 11,090  |  
|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Income before provision for income taxes     |  |                    | 1,191   |   |                  |   | 956     |              |  |   | 6,494       |   |  |   | 4,852   |  
|Provision for income taxes                   |  |                    | 275     |   |                  |   | 339     |              |  |   | 2,333       |   |  |   | 1,619   |  
|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Net income                                   |  | $                  | 916     |   |                  | $ | 617     |              |  | $ | 4,161       |   |  | $ | 3,233   |  
|                                             |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                  |        |   |             |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ----------- | - | ------- | -
|                                                                                  |  | Six Months Ended |       
|                                                                                  |  | June 30,2007     |        |   | July 1,2006 |  
|Cash flows from operating activities:                                             |  |                  |        |   |             |   |         |  
|Net income                                                                        |  | $                | 4,161  |   |             | $ | 3,233   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |        |   |             |   |         |  
|Loss on disposal of fixed assets                                                  |  |                  | 6      |   |             |   |        |  
|Depreciation and amortization                                                     |  |                  | 7,821  |   |             |   | 7,203   |  
|Deferred income taxes                                                             |  |                  | 2,439  |   |             |   | 1,438   |  
|Deferred rent                                                                     |  |                  | 922    |   |             |   | 1,020   |  
|Equity compensation expense                                                       |  |                  | 591    |   |             |   | 184     |  
|Changes in operating assets and liabilities:                                      |  |                  |        |   |             |   |         |  
|Inventories                                                                       |  |                  | (3,550 | ) |             |   | (11,106 | )
|Prepaid expenses and other current assets                                         |  |                  | 1,569  |   |             |   | (2,651  | )
|Other non-current assets                                                          |  |                  | 33     |   |             |   | (73     | )
|Accounts payable                                                                  |  |                  | (3,815 | ) |             |   | 6,001   |  
|Accrued expenses and other current liabilities                                    |  |                  | (4,124 | ) |             |   | (1,433  | )
|Other long-term liabilities                                                       |  |                  | 16     |   |             |   |        |  
|                                                                                  |  |                  |        |   |             |   |         |  
|Net cash provided by operating activities                                         |  |                  | 6,069  |   |             |   | 3,816   |  
|                                                                                  |  |                  |        |   |             |   |         |  
|Cash flows from investing activities:                                             |  |                  |        |   |             |   |         |  
|Capital expenditures                                                              |  |                  | (5,947 | ) |             |   | (4,509  | )
|                                                                                  |  |                  |        |   |             |   |         |  
|Net cash used in investing activities                                             |  |                  | (5,947 | ) |             |   | (4,509  | )
|                                                                                  |  |                  |        |   |             |   |         |  
|Cash flows from financing activities:                                             |  |                  |        |   |             |   |         |  
|Borrowings under revolving credit agreement                                       |  |                  | 4,000  |   |             |   |        |  
|Repayments of borrowing under revolving credit agreement                          |  |                  | (4,000 | ) |             |   | (2,627  | )
|Deferred financing fees                                                           |  |                  |       |   |             |   | (375    | )
|                                                                                  |  |                  |        |   |             |   |         |  
|Net cash used in financing activities                                             |  |                  |       |   |             |   | (3,002  | )
|                                                                                  |  |                  |        |   |             |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                  | 122    |   |             |   | (3,695  | )
|Cash and cash equivalents beginning of period                                     |  |                  | 1,472  |   |             |   | 4,784   |  
|                                                                                  |  |                  |        |   |             |   |         |  
|Cash and cash equivalents end of period                                           |  | $                | 1,594  |   |             | $ | 1,089   |  
|                                                                                  |  |                  |        |   |             |   |         |  
|Supplemental disclosures of cash flow information:                                |  |                  |        |   |             |   |         |  
|Interest paid                                                                     |  | $                | 10,862 |   |             | $ | 10,373  |  
|Income taxes paid                                                                 |  | $                | 133    |   |             | $ | 249     |  
|Supplemental disclosures of non-cash investing activities:                        |  |                  |        |   |             |   |         |  
|Accrued purchases of property and equipment                                       |  | $                | 108    |   |             | $ | 68      |  
|Supplemental disclosures of non-cash financing activities:                        |  |                  |        |   |             |   |         |  
|Dividend to VS Parent, Inc. (See note 2)                                          |  | $                |       |   |             | $ | 1,668   |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(in thousands, except share data)



|                                         |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   |         |  
|---------------------------------------- |  | ------------ |  | ------------------------- | - | -------------------------------------- | - | ------- | ------------------------------------ | - | ------ | - |  | - | --- |  | - | ------- | -
|                                         |  | Common
Stock |  | AdditionalPaid-In-Capital |   | (Accumulated Deficit)Retained Earnings |   |         | Accumulated OtherComprehensiveIncome |   | Total  |  
|                                         |  | Shares       |  | Amounts                   |   |                                        |   |        
|Balance at December 30, 2006             |  | 100          |  | $                         |  |                                        | $ | 155,642 |                                      | $ | (2,614 | ) |  | $ | 478 |  | $ | 153,506 |  
|                                         |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   |         |  
|Net income                               |  |             |  |                           |  |                                        |   |        |                                      |   | 4,161  |   |  |   |    |  |   | 4,161   |  
|Interest Rate Swap, net of taxes of $273 |  |             |  |                           |  |                                        |   |        |                                      |   |       |   |  |   | 378 |  |   | 378     |  
|                                         |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   |         |  
|Total Comprehensive Income               |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   | 4,539   |  
|Adoption of FIN 48 (see Note 12)         |  |             |  |                           |  |                                        |   |        |                                      |   | (241   | ) |  |   |    |  |   | (241    | )
|Equity Compensation Expense              |  |             |  |                           |  |                                        |   | 591     |                                      |   |       |   |  |   |    |  |   | 591     |  
|                                         |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   |         |  
|Balance at June 30, 2007                 |  | 100          |  | $                         |  |                                        | $ | 156,233 |                                      | $ | 1,306  |   |  | $ | 856 |  | $ | 158,395 |  
|                                         |  |              |  |                           |   |                                        |   |         |                                      |   |        |   |  |   |     |  |   |         |  

See accompanying notes to condensed consolidated financial statements (unaudited).



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VS HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|1. | Basis of Presentation
|-- | ---------------------

VS Holdings
(Holdings), a Delaware corporation, and through its wholly-owned subsidiary, Vitamin Shoppe Industries Inc. (Subsidiary or VSI), a New York corporation, and VSIs wholly-owned subsidiary, VS Direct Inc.
(Direct, and, together with Holdings and VSI, the Company), is a leading specialty retailer and direct marketer of nutritional products. The Company sells both national brands and The Vitamin Shoppe and
BodyTech brands of vitamins, minerals, nutritional supplements, herbs, sports nutrition formulas, homeopathic remedies and other health and beauty aids through Company-owned retail stores, mail order catalogs and the Internet to
customers located primarily in the United States. The Company operates from its headquarters in North Bergen, New Jersey.

The condensed
consolidated financial statements as of June 30, 2007 and for the three and six months ended June 30, 2007 and July 1, 2006 include the accounts of Holdings, VSI and VSIs wholly owned subsidiary Direct. All significant
intercompany transactions have been eliminated. The condensed consolidated financial statements as of June 30, 2007 and for the three and six months ended June 30, 2007 and July 1, 2006 are unaudited. In addition, certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. The interim financial
statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with GAAP. The interim financial statements should be read in conjunction with the audited financial statements and notes
thereto. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

The Companys fiscal year ends on the last Saturday in December. As used herein, the term Fiscal Year or Fiscal refers to the 52-week period, ending the last Saturday in December. Fiscal 2007 is a 52-week period
ending December 29, 2007 and Fiscal 2006 was a 52-week period ended December 30, 2006. The results for the three and six months ended June 30, 2007, and July 1, 2006, are each based on a 13-week and 26-week period, respectively.



|2. | Reorganization and Recapitalization
|-- | -----------------------------------

On
June 12, 2006, VS Mergersub, Inc., then a wholly-owned subsidiary of VS Parent, Inc. (Parent), then a wholly-owned subsidiary of Holdings, merged with and into Holdings, with Holdings being the surviving corporation. By operation of
the merger, Holdings became a direct wholly-owned subsidiary of Parent. In connection therewith, each share (or fractional share) of Series A Preferred Stock of Holdings was converted into a right to receive a share (or fractional share) of Series A
preferred stock, par value $0.01 per share of Parent, and each share (or fractional share) of common stock of Holdings was converted into a share (or fractional share) of common stock, par value $0.01 per share of Parent, and all equity grants
(1,533,519 stock options and 567,163 warrants) of Holdings were converted on a one-to-one basis into grants permitting the right to receive a share of Parents common stock upon exercise. Subsequent to the reverse merger, Holdings was
authorized to issue 1,000 shares of Common Stock, whereby 100 shares were issued to Parent. In addition, a dividend of $1.7 million, recorded within additional paid-in capital, was made from Holdings to Parent for a note receivable of $1.5 million,
which was accounted for as a separate component of stockholders equity, and related accrued interest receivable of $0.2 million.



|3. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

Use
of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments PolicyThe Company entered into an interest rate swap during December 2005 on a portion of its $165 million Second
Priority Senior Secured Floating Rate Notes due 2012 (the Notes) offering for $165 million, which did originally not qualify for hedge accounting under SFAS No. 133. As a result, the fair market value of the interest rate swap was
marked to market during the first quarter of Fiscal 2006 with a corresponding adjustment to other expense. The interest rate swap subsequently qualified for hedge accounting at the end of the first quarter of Fiscal 2006. The interest rate swap has
a maturity date of November 2010. The fair market value of $1.3 million as of June 30, 2007, is recorded in other assets on the condensed consolidated balance sheet. Of the increase in market value of $0.7 million during Fiscal 2007, $0.4
million is recorded in accumulated other comprehensive income, and $0.3 million is recorded in the deferred income tax liability.



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Advertising CostsCosts associated with the production and distribution of the Companys
monthly and quarterly catalogs are expensed as incurred. The costs of advertising for online marketing arrangements, magazines, television and radio are expensed the first time advertising takes place. Advertising expense was $3.6 million and $8.2
million for the three and six months ended June 30, 2007, respectively, and $2.8 million and $8.1 million for the three and six months ended July 1, 2006, respectively.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure and report
selected financial assets and liabilities at fair value, with the objective to reduce both the complexity in accounting for financial instruments and mitigate the volatility in reported earnings caused by measuring related assets and liabilities
differently. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements of SFAS No. 159 and has not yet determined the impact, if
any, the adoption will have on its financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. This statement defines and establishes a framework for measuring fair value, and expands fair value disclosures. It does not require any new fair value measurements. The intent of this statement is
to increase consistency of definitions and comparability of methods of fair value measurements, as well as to enhance fair value disclosure. This statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company does not expect the adoption to have a material impact on its financial condition, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income
Taxes. This interpretation clarifies the evaluation methods and accounting treatment for tax positions to be taken or expected to be taken in the future. It requires that the Company determine certain tax positions to be sustainable under an
examination, and the measurement of the impact for positions deemed to be non-sustainable. The Company adopted FIN 48 in the first quarter of Fiscal 2007. Please refer to Note 12 for a detailed discussion.



|4. | Goodwill and Intangible Assets
|-- | ------------------------------

On October 8,
2002, a definitive merger agreement was entered into whereby VSI agreed to be sold to Holdings, a newly formed holding company (the Acquisition). The Acquisition was accounted for as a purchase under the provisions of SFAS No. 141,
Business Combinations. Acquired intangibles and goodwill are accounted for under SFAS No. 142, Goodwill and Other Intangible Assets.

The following table discloses the carrying value of all intangible assets (in thousands):



|                   |  |                     |         |                         |   |        |  |                     |         |                         |   |         |  |   |        |  |   |        
|------------------ |  | ------------------- | ------- | ----------------------- | - | ------ |  | ------------------- | ------- | ----------------------- | - | ------- |  | - | ------ |  | - | -------
|                   |  | June 30, 2007       |         | December 30, 2006      
|                   |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net    |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net    
|Intangible assets: |  |                     |         |                         |   |        |  |                     |         |                         |   |         |  |   |        |  |   |        
|Customer list      |  | $                   | 19,900  |                         | $ | 19,900 |  | $                   |        |                         | $ | 19,900  |  | $ | 19,900 |  | $ |       
|Tradenames         |  |                     | 68,205  |                         |   |       |  |                     | 68,205  |                         |   | 68,205  |  |   |       |  |   | 68,205 
|Goodwill           |  |                     | 177,248 |                         |   |       |  |                     | 177,248 |                         |   | 175,896 |  |   |       |  |   | 175,896
|                   |  |                     |         |                         |   |        |  |                     |         |                         |   |         |  |   |        |  |   |        
|                   |  | $                   | 265,353 |                         | $ | 19,900 |  | $                   | 245,453 |                         | $ | 264,001 |  | $ | 19,900 |  | $ | 244,101
|                   |  |                     |         |                         |   |        |  |                     |         |                         |   |         |  |   |        |  |   |        

There was no intangible amortization expense for the three and six months ended June 30, 2007
and July 1, 2006, respectively. The amortization period for the customer list was three years, and was fully amortized at December 31, 2005. Tradenames are not amortized, as they were determined to be intangible assets with indefinite
lives, but will be tested for impairment in the last quarter of 2007 or whenever impairment indicators exist, along with the Companys goodwill. For an explanation of the change in goodwill during the six months ended June 30, 2007, please
see Note 12 to the condensed consolidated financial statements.



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|5. | Property and Equipment
|-- | ----------------------

Property and equipment
consist of the following (in thousands):



|                                                |  |              |         |   |                  |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                |  | June 30,2007 |         |   | December 30,2006 |  
|Furniture, fixtures and equipment               |  | $            | 64,522  |   |                  | $ | 61,869  |  
|Leasehold improvements                          |  |              | 64,375  |   |                  |   | 61,644  |  
|Website development costs                       |  |              | 9,618   |   |                  |   | 9,618   |  
|Transportation equipment                        |  |              | 21      |   |                  |   | 21      |  
|Construction in progress                        |  |              | 3,050   |   |                  |   | 2,569   |  
|                                                |  |              |         |   |                  |   |         |  
|                                                |  |              | 141,586 |   |                  |   | 135,721 |  
|Less: accumulated depreciation and amortization |  |              | (80,847 | ) |                  |   | (73,790 | )
|                                                |  |              |         |   |                  |   |         |  
|                                                |  | $            | 60,739  |   |                  | $ | 61,931  |  
|                                                |  |              |         |   |                  |   |         |  

Depreciation and amortization expense on property and equipment for the three and six months ended
June 30, 2007 was $3.7 million and $7.2 million, respectively, and for the three and six months ended July 1, 2006 was $3.4 million and $6.7 million, respectively.



|6. | Credit Arrangements
|-- | -------------------

Debt consists of the following
(in thousands):



|                                                                 |  |              |         |                  |   |        
|---------------------------------------------------------------- |  | ------------ | ------- | ---------------- | - | -------
|                                                                 |  | June 30,2007 |         | December 30,2006
|Revolving Credit Facility                                        |  | $            | 6,500   |                  | $ | 6,500  
|                                                                 |  |              |         |                  |   |        
|Second Priority Senior Secured Floating Rate Notes (the Notes) |  | $            | 165,000 |                  | $ | 165,000
|                                                                 |  |              |         |                  |   |        

2005 Second Priority Senior Secured Floating Rate Notes

On November 7, 2005, VSI completed its Notes offering for $165 million. The initial purchasers received delivery of the Notes on November 15,
2005.

Interest on the Notes is set at a per annum rate equal to a three month LIBOR plus 7.5%, which is reset quarterly on
February 15, May 15, August 15 and November 15 of each year, commencing on February 15, 2006. The combined weighted average interest rate before the impact of our hedging activities from December 31, 2006
through June 30, 2007 was 12.86%. The Notes will mature on November 15, 2012. Interest on overdue principal and interest and liquidated damages, if any, will accrue at a rate that is 1% higher than the applicable interest rate on the
Notes. If VSI cannot make payments on the Notes when they are due, Holdings and VSIs only subsidiary, Direct (collectively, the Guarantors), have guaranteed the Notes and must make payments instead. The Notes and the guarantees are
secured by a second priority security interest in substantially all of VSIs and the Guarantors assets that secure VSIs new first priority senior secured credit facility. The Notes and the guarantees are VSIs, and the
Guarantors, second priority senior secured obligations, and rank equally in right of payment with all of VSIs and the Guarantors existing and future senior indebtedness and senior to all of VSIs and the Guarantors
existing and future subordinated indebtedness. The Notes and the guarantees are effectively subordinated to all of VSIs and the Guarantors first priority senior secured indebtedness, including VSIs new first priority senior secured
credit facility, to the extent of the collateral securing such indebtedness. If VSI sells certain assets, issues equity or experiences specific kinds of changes in control, VSI must offer to repurchase the Notes. VSI may, at its option, redeem some
or all of the Notes at any time on or after November 15, 2007. Prior to November 15, 2007, VSI may, at its option, redeem up to 35% of the Notes with the proceeds of certain sales of its equity or of Holdings. VSI used the proceeds from
the sale of the Notes to repay all of its and Holdings existing indebtedness and to pay related fees and expenses.



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Revolving Credit Facility

On November 15, 2005, VSI entered into a new $50.0 million senior secured revolving credit facility (the Revolving Credit Facility), and VSI has the option to increase or decrease the Revolving Credit
Facility size by $25.0 million, subject to certain conditions. The availability under the Revolving Credit Facility is subject to a borrowing base calculated on the basis of certain eligible accounts receivable from credit card companies and the
inventory of VSI and its only subsidiary, Direct. The obligations thereunder are secured by a security interest in substantially all of the assets of Holdings, VSI and Direct. The Revolving Credit Facility provides for affirmative and negative
covenants affecting Holdings, VSI and Direct. The Revolving Credit Facility restricts, among other things, the Companys ability to incur indebtedness, create or permit liens on the Companys assets, declare or pay cash dividends and
certain other restricted payments, consolidate, merge or recapitalize, acquire or sell assets, make certain investments, loans or other advances, enter into transactions with affiliates, change its line of business, and restricts the types of
hedging activities the Company can enter into. The Revolving Credit Facility has a maturity date of November 15, 2010. The unused available line of credit at June 30, 2007 was $37.9 million and the amount of borrowings outstanding at
June 30, 2007 was $6.5 million. The largest amount borrowed at any given point during 2007 was $8.5 million. The Revolving Credit Facility includes a $10 million sub-facility for the issuance of letters of credit, of which there were $0.3
million issued and outstanding as of June 30, 2007.

The borrowings under the Revolving Credit Facility accrue interest, at the
Companys option at the rate per annum announced from time to time by the agent as its prime rate, or at a per annum rate equal to between 1.25% and 1.75% (depending on excess availability) above the adjusted Eurodollar rate. The
combined weighted average interest rate from December 31, 2006 through June 30, 2007 was 6.61%.

Interest expense for the three
and six months ended June 30, 2007 and July 1, 2006 consists of the following (in thousands):



|                                                    |  |                    |       |                  |   |              |  |             |        |  |   |       
|--------------------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------ |  | ----------- | ------ |  | - | ------
|                                                    |  | Three Months Ended |       | Six Months Ended
|                                                    |  | June 30,2007       |       | July 1,2006      |   | June 30,2007 |  | July 1,2006
|Interest on the Notes                               |  | $                  | 5,189 |                  | $ | 5,145        |  | $           | 10,266 |  | $ | 10,166
|Amortization of deferred financing fees             |  |                    | 290   |                  |   | 261          |  |             | 580    |  |   | 517   
|Interest on the revolving credit facility and other |  |                    | 163   |                  |   | 172          |  |             | 301    |  |   | 407   
|                                                    |  |                    |       |                  |   |              |  |             |        |  |   |       
|                                                    |  | $                  | 5,642 |                  | $ | 5,578        |  | $           | 11,147 |  | $ | 11,090
|                                                    |  |                    |       |                  |   |              |  |             |        |  |   |       



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|7. | Stock-Based Compensation
|-- | ------------------------

Stock Option
PlanIn connection with the Acquisition, the Company adopted the VS Holdings, Inc. 2002 Stock Option Plan (the 2002 Plan) for certain directors, officers, consultants and employees of the Company. The Company authorized the
issuance of up to 2,046,041 shares of common stock. As of June 2006, the 2002 Plan was amended and assigned to VS Parent where it was adopted as the VS Parent, Inc. 2006 Stock Option Plan (the 2006 Plan), converting all grants on a
one-to-one basis for the right to receive a common share of VS Parent upon exercise. The stock options are exercisable at no less than the fair market value of the underlying shares on the date of grant. Generally, options awarded shall become
vested in four equal increments on each of the first, second, third and fourth anniversaries of the date on which such options were awarded. The stock options have a maximum term of 10 years. The following table summarizes the Companys stock
option program as of June 30, 2007 and changes during the six month period then ended:



|                                            |  |                   |   |  |                               |      
|------------------------------------------- |  | ----------------- | - |  | ----------------------------- | -----
|                                            |  | Total Outstanding
|                                            |  | Number ofOptions  |   |  | WeightedAverageExercise Price
|December 30, 2006                           |  | 1,604,931         |   |  | $                             | 17.96
|Granted                                     |  | 328,314           |   |  | $                             | 25.02
|Forfeited                                   |  | (77,724           | ) |  | $                             | 18.71
|                                            |  |                   |   |  |                               |      
|June 30, 2007                               |  | 1,855,521         |   |  | $                             | 19.18
|                                            |  |                   |   |  |                               |      
|Vested or expected to vest at June 30, 2007 |  | 1,827,688         |   |  | $                             | 19.18
|Vested and Exercisable at June 30, 2007     |  | 903,479           |   |  | $                             | 17.64

The following table summarizes information about options outstanding at June 30, 2007:



|                         |  |                                  |  |                                                 |  |                              |       |                                  |         |                              |   |      
|------------------------ |  | -------------------------------- |  | ----------------------------------------------- |  | ---------------------------- | ----- | -------------------------------- | ------- | ---------------------------- | - | -----
|                         |  | Options Outstanding              |  | Options Exercisable                            
|Range of Exercise Prices |  | NumberOutstandingat June 30,2007 |  | WeightedAverageRemainingContractualLife (years) |  | WeightedAverageExercisePrice |       | NumberExercisableat June 30,2007 |         | WeightedAverageExercisePrice
|$10.00 to $ 20.00        |  | 1,021,439                        |  | 6.95                                            |  | $                            | 13.16 |                                  | 602,341 |                              | $ | 12.72
|$20.01 to $ 30.00        |  | 834,082                          |  | 8.06                                            |  | $                            | 26.55 |                                  | 301,138 |                              | $ | 27.50
|                         |  |                                  |  |                                                 |  |                              |       |                                  |         |                              |   |      
|                         |  | 1,855,521                        |  | 7.45                                            |  | $                            | 19.18 |                                  | 903,479 |                              | $ | 17.64
|                         |  |                                  |  |                                                 |  |                              |       |                                  |         |                              |   |      

Prior to January 1, 2006, the Company applied the intrinsic value method as outlined in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations in accounting for stock options and share units granted under these programs. Under the
intrinsic value method, no compensation expense needed to be recognized if the exercise price of the Companys employee stock options equaled the market price of the underlying stock on the date of the grant. Accordingly, the Company did not
recognize any compensation cost in the consolidated statements of operations prior to January 1, 2006 for stock options granted to employees.

Effective January 1, 2006, the Company adopted SFAS No. 123(R) (SFAS 123(R)). This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes APB
No. 25. SFAS No. 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. The Company adopted the prospective method of
applying SFAS 123(R). Under the prospective method, those nonpublic companies that used the minimum value method of measuring equity share options and similar instruments for either recognition or pro-forma disclosure purposes will apply SFAS 123(R)
prospectively to new awards and awards modified, repurchased or cancelled after the required effective date. The Company continues to account for any portion of award outstanding at the date of initial application using the accounting principles
originally applied to those awards which were the provisions of APB No. 25 and its related interpretive guidance. Compensation expense attributable to stock-based compensation for the three and six months ended June 30, 2007, was
approximately $0.4 million and $0.6 million, respectively, and for the three and six months ended July 1, 2006, was approximately $0.2 million and $0.2 million, respectively. As of June 1, 2007, the remaining unrecognized stock-based
compensation expense for non-vested stock options issued after the effective date of SFAS 123(R) to be expensed in future periods is $6.3 million,



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##### Table of Contents

and the related weighted-average period over which it is expected to be recognized is 3.75 years. There were 903,479 and 952,042 vested and non-vested
options, respectively, at June 30, 2007. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from those estimates. For periods prior to
January 1, 2006, we accounted for forfeitures as they occurred in the Companys pro forma information required by SFAS 123. Currently, the Company estimates forfeitures based on its historical forfeiture rate since the plan inception
in Fiscal 2002. The estimated future forfeitures as of June 30, 2007 are approximately $0.1 million.

The weighted-average grant date
fair value of stock options granted during the three and six months ended June 30, 2007, were $13.11 and $13.00, respectively, and for the three and six months ended July 1, 2006, were $5.81 and $5.81 respectively. There were no stock
options exercised during the first six months of Fiscal 2007 or 2006. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



|                        |  |                    |  |                  |  |              |  |             
|----------------------- |  | ------------------ |  | ---------------- |  | ------------ |  | ------------
|                        |  | Three Months Ended |  | Six Months Ended
|                        |  | June 30,2007       |  | July 1, 2006     |  | June 30,2007 |  | July 1, 2006
|Expected dividend yield |  | 0.0%               |  | 0.0%             |  | 0.0%         |  | 0.0%        
|Expected volatility     |  | 52.6%              |  | 56.8%            |  | 52.6%        |  | 56.8%       
|Risk-free interest rate |  | 4.66%              |  | 5.10%            |  | 4.66%        |  | 5.10%       
|Expected holding period |  | 6.25 years         |  | 6.25 years       |  | 6.25 years   |  | 6.25 years  

The expected volatility applicable to the three and six months ended June 30, 2007 is based
on the volatility levels over the past 6.25 years from the average volatility of similar actively traded companies. The risk-free interest rate is derived from the average yield for the five and seven year zero-coupon U.S. Treasury Strips. The
expected holding period of the option is calculated using the simplified method using the vesting term of 4 years and the contractual term of 10 years.



|8. | Legal Proceedings
|-- | -----------------

Dwight Thompson v. The
Vitamin Shoppe.On February 25, 2005, a former store manager filed suit in the Superior Court of the State of California for the County of Orange, alleging miscellaneous wage and hour violations under California law, including, but not
limited to, violations related to the misclassification of store managers as exempt employees under California law and violations with respect to providing meal and rest periods for store managers and assistant store managers. The Company opened its
first store in California in December 2002, and the Company reclassified its California store managers as non-exempt employees in January 2004. Plaintiff seeks to bring this action on behalf of himself and other similarly situated
current and former California store managers and assistant store managers. In addition to the allegations made on behalf of the class, the plaintiff has also alleged violations of various provisions of the California Labor Code that would entitle
plaintiff to collect fees under the California bounty hunter statute. The parties engaged in some preliminary pre-trial discovery, and the matter is currently stayed pending court approval of the settlement in the Perry case described
below. When the stay is lifted, the Company intends to defend the individual claim vigorously.

David Beauford, Jonathan Opris
and Leonard Tyler, Jr. v. Vitamin Shoppe Industries Inc. On July 13, 2005 plaintiff Beauford, a former store manager, and plaintiff Opris, a former assistant store manager, filed suit in the Superior Court of the State of California
for the County of Marin, alleging miscellaneous wage and hour violations, and violations with respect to meal and rest periods under California law on behalf of store managers and assistant store managers. Many of plaintiffs allegations are
similar to the violations alleged in the Thompson and Perry matter described below, and plaintiffs seek to bring this action on behalf of themselves and others who are similarly situated. Discovery in this case is currently stayed
pending court approval of the settlement in the Perry case described below. When the stay is lifted, the Company intends to defend these individual claims vigorously.

Janine Perry and Thomas Vitrano v. Vitamin Shoppe Industries Inc.On August 17, 2005, plaintiff Perry, a former assistant store manager, and plaintiff Vitrano, a current store manager, filed suit in the
Superior Court of the State of California for the County of Marin, alleging miscellaneous wage and hour violations under California law, including, but not limited to, violations related to misclassification of store managers and violations with
respect to providing meal and rest periods for store managers and assistant store managers. Plaintiffs allegations are similar to the violations alleged in the Thompson and Beauford matters described above, and plaintiffs seek to bring this
action on behalf of themselves and others who are similarly situated. On December 20, 2005, the parties engaged in mediation and the parties entered into a Memorandum of Understanding, which was followed by execution of a formal
Settlement Agreement. The Company accrued $0.4 million for the proposed settlement in the last quarter of Fiscal 2005 and has deposited the same in escrow. The settlement has received preliminary approval of the Marin County Superior Court, subject
to notice to class members and Final Approval at a hearing now set for November 2, 2007. The Company anticipates that Final Approval of the settlement will be opposed by the plaintiffs counsel in the Thompson action and the action of
behalf of the nine individuals described in the next paragraph.



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The three matters summarized above, though separately filed, seek in primary part the same relief on
behalf of the same class of employees. If the settlement in the Perry matter is granted final approval by the Court, such settlement should for the most part eliminate the claims in the other two cases, subject to the rights of individual claimants
to elect to not become participants in the class settlement and pursue separate individual claims. Plaintiffs counsel in the Thompson case has been aggressive in opposing the Perry settlement. On July 7, 2006, such plaintiffs
counsel filed a new lawsuit against the Company in Orange County, California on behalf of the same plaintiff whom they represent in the Perry case, as well as eight other individuals. The complaint seeks the same relief as is sought in Perry and the
other two cases, but does so on behalf of only those nine plaintiffs, as opposed to the larger class. The court has stayed this action in deference to the Perry settlement. When the stay is lifted, the Company intends to defend these individual
claims vigorously. The $0.4 million that was accrued and deposited in escrow is the Companys best estimate based on the information available at the time of this filing, however, circumstances in the future may alter the outcome of the
proposed settlement.

Red Yeast Rice Litigation. By letter dated November 28, 2005, an individual named Lawrence Switzer
alleged that certain products sold by our Company containing an ingredient known as red yeast rice violate the California Consumers Legal Remedies Act (CLRA) and other California consumer protection laws. Mr. Switzer filed suit in
Los Angeles Superior Court on May 19, 2006 against our Company and 15 other manufacturers or retailers of similar products. The principal basis of the suit is that the products contain the chemical lovastatin, which is also the active
ingredient in pharmaceutical products, the presence of which Mr. Switzer alleges causes the products to be drugs as opposed to dietary supplements under federal and, derivatively, California law. While the case is not brought as a class action,
Mr. Switzer claims to be a representative of the public suing for injunctive relief that will benefit the public. He seeks restitution on behalf of all purchasers of the products as well as compensatory damages, punitive damages, and attorneys
fees and costs of litigation. There is no claim of personal injury. The Company and other defendants demurred to both the original complaint and an amended complaint on grounds of standing and preemption and on July 24, 2007, the Court granted
the demurrer on grounds of standing and indicated it will dismiss the case. The plaintiff has stated that he will appeal. The Company intends to continue to defend this lawsuit vigorously. In 2006, the Company reformulated and reintroduced private
label products containing red yeast rice. Additionally, on March 29, 2007, Mr. Switzer sent the Company and several other defendants a Notice of Violation asserting that red yeast rice products sold by the Company violate Californias
Proposition 65. Before Mr. Switzer was authorized to file suit on this claim, the California Attorney General filed suit against the named companies seeking revisions to the warnings on their labels. The suit does not challenge the
Companys private label products containing red yeast rice but does challenge third-party products containing red yeast rice that are sold by the Company. In response to such action, the Company stopped selling third party products containing
red yeast rice in California. The Company is negotiating a settlement with the California Attorney General. At this time it is premature to address any potential loss as a result of these cases, or the amount or range of potential loss. As of
June 30, 2007, the Company has not accrued any liabilities related to this litigation.

Multivitamins Especially for Women
Litigation. On January 19, 2007, media reports noted that an organization called Consumerlab.com had tested various nutritional supplements and found that the Companys private label brand of Multivitamins Especially for Women (the
Product) contain less calcium than specified on the product label and contain levels of lead that are above what it believes acceptable parameters. As a precaution, the Company voluntarily and temporarily ceased selling the Product
pending an internal investigation and offered a full refund to those who had purchased the Product. Based upon the allegations in Consumerlab.coms report, five purported class actions were filed against the company, four in Federal Court in
California and one in State Court in New Jersey, from January through March 2007. The suits allege, in various combinations, violations of the California Consumers Legal Remedies Act (CLRA), the Californias Unfair Competition and
False Advertising Laws, the New Jersey Consumer Fraud Act, the Uniform Commercial Code and the Federal Magnusson Moss Act, common law, statutory and common law warranties, and various common law torts, on behalf of both state and national classes.
The various actions seek some combination of restitution on behalf of purchasers of the Products, an injunction and attorneys fees and costs of litigation, and actual, treble, and punitive damages. There is no claim of personal injury in any
of the actions.

The Company has been served with the complaints in these cases but has not yet filed a substantive response. Following
mediation on June 11, 2007, all claims were settled in principle among counsel. The settlement is pending documentation, preliminary court approval, class notice, and final court approval. The Company has signed an agreement with the contract
manufacturer of the product to fund all of the costs of the settlement up to a negotiated limit, which the Company does not believe will be exceeded. Accordingly, as of June 30, 2007, the Company has not accrued any liabilities related to this
litigation.

Serge Torossian v. Vitamin Shoppe Industries Inc., and Erik J. Khorovsky v. The Vitamin Shoppe, and Vitamin Shoppe
Industries, Inc. Plaintiffs Torossian and Khorovsky each filed a class action suit in the U.S. District Court for the Central District of California on January 22, 2007 and February 12, 2007, respectively. The suits allege that the
defendants violated a requirement in the Federal Fair Credit Reporting Act that prohibits merchants from providing consumers with a credit card receipt on which more than the last five digits of the card account number or the expiration date of the
credit card are printed. Both complaints seek monetary damages and attorneys fees and the Khorovsky Complaint also seeks injunctive relief. On July 23, 2007, the Court denied plaintiffs



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motion for class certification in the Torossian case. Plaintiff has indicated an intention to seek permission to appeal this ruling, but has not yet done so.
No significant activity has occurred in the Khorovsky case other than the defendants' filing of an answer denying liability. The Company intends to defend the lawsuits vigorously. At this time it is premature to address any potential loss as a
result of these cases, or the amount or range of potential loss. As of June 30, 2007, the Company has not accrued any liabilities related to this litigation.

California District Attorneys Letter. On May 17, 2007, the Company received a letter from the Napa County (California) District Attorney alleging that six of the Companys private label products
contain levels of lead that, pursuant to Californias Proposition 65, Cal. Health & Safety Code section 25249.5 et seq., require the products to bear a warning when sold in California. The letter claims that 12 other public prosecutors
in California, including the California Attorney General, are involved in a joint investigation of dietary supplements containing lead in amounts that expose users to lead in excess of 0.50 micrograms (ug) per day. The letter demands
that the Company immediately cease all sales of these products in California unless it provides a warning to consumers. It also notes that Proposition 65 provides for civil penalties of up to $2,500 per violation per day. The Company has contacted
the Napa County District Attorney as well as the California Attorney General and is investigating these allegations and consulting with its third-party suppliers of these products. One of the named products, Multivitamin Especially for Women, has
not been sold by the Company since late January 2007. The other named products are Dandelion Root, Green Tea Extract, Ginger Root, Chitosan and Dong Quai. The Company has withdrawn certain of these products from the California market and has begun
providing warnings with respect to the others pending negotiations with the public prosecutors. At this time it is premature to address any potential loss as a result of these cases, or the amount or range of potential loss. As of June 30,
2007, the Company has not accrued any liabilities related to this litigation.

The Company is party to various lawsuits arising from time
to time in the normal course of business. Except as described above, as of the end of six months ended June 30, 2007, the Company was not party to any material legal proceedings. Although the impact of the final resolution of these matters on
the Companys financial condition or results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these lawsuits will have a material adverse effect on the financial
condition or liquidity of the Company.



|9. | Costs Associated with Severance
|-- | -------------------------------

In accordance with
SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), the Company has recorded costs related to termination benefits for certain employees during Fiscal 2006 and the
three and six months ended June 30, 2007. During Fiscal 2006 eight corporate employee positions were eliminated throughout the Company due to a staff restructuring. Based on these and prior year eliminations, the Company incurred severance
obligations which were partially payable in Fiscal 2006 and Fiscal 2007. The total amount recorded to selling, general and administrative expense was approximately $0.4 million and $0.8 million during the three and six months ended July 1,
2006, respectively, and $0.1 million and $0.3 million during the three and six months ended June 30, 2007. Below is a reconciliation of the activity for the six months ended June 30, 2007 (in thousands):



|                                                    |  |   |      |  
|--------------------------------------------------- |  | - | ---- | -
|Balance at December 30, 2006                        |  | $ | 152  |  
|Accrual made during six months ended June 30, 2007  |  |   | 269  |  
|Payments made during six months ended June 30, 2007 |  |   | (308 | )
|                                                    |  |   |      |  
|Balance at June 30, 2007                            |  | $ | 113  |  
|                                                    |  |   |      |  



|10. | Related Party Transactions
|--- | --------------------------

In connection with the
Acquisition, the Company entered into a management agreement with Bear Stearns Merchant Manager II, LLC. This agreement provides for a quarterly fee of the greater of $187,500 or 0.25% of gross sales for the preceding fiscal quarter for advisory and
consulting services. Amounts paid during the three and six months ended June 30, 2007, were $0.4 million and $0.7 million, respectively, and for the three and six months ended July 1, 2006 were approximately $0.3 million and $0.7 million,
respectively.

In November 2005, the Company entered into a consulting agreement with Renaissance Brands LTD. (Renaissance), an
advisory and consulting company serving a number of private equity and venture capital firms. Douglas B. Fox, a member of the Companys board of directors, is the Chief Executive Officer and sole shareholder of Renaissance. Renaissance provided
marketing, advertising and messaging advice to the Company and was paid $2,500 per day, for not more than three days per month, for such services. This arrangement was terminated in September 2006, and Renaissance Brands no longer performs any
services for the Company. Amounts paid during the three and six months ended July 1, 2006 were approximately $23,000 and $61,000, respectively, for fees and expenses.



15



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##### Table of Contents

|11. | Segment Data
|--- | ------------

The Company currently operates two
business segments, retail and direct. The operating segments are segments of the Company for which separate financial information is available and for which operating results are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance. The Companys management evaluates segment operating results based on several indicators. The primary key performance indicators are sales and operating income for each segment. The below table
represents key financial information for each of the Companys business segments, retail and direct, as well as corporate costs. The retail segment includes the Companys retail stores. The retail segment generates revenue primarily
through the sale of third-party branded and proprietary branded vitamins, minerals, herbs, supplements, sports nutrition and other health and wellness products through retail stores throughout the United States. The direct segment generates revenue
through the sale of third-party branded and proprietary branded vitamins, minerals, herbs, supplements, sports nutrition and other health and wellness products through the Companys catalog and its Web site. A catalog is mailed each month to
customers in the Companys Frequent Buyer Program database, and the Companys website at www.vitaminshoppe.com offers its customers online access to a full assortment of over 20,000 SKUs. Corporate costs represent the Companys
administrative expenses which include, but are not limited to: human resources, legal, finance, IT, and various other corporate level activity related expenses. There are no inter-segment sales transactions.

The Companys segments are designed to allocate resources internally and provide a framework to determine management responsibility. The accounting
policies of the segments are the same as those described in Note 4- Summary of Significant Accounting Policies in the Fiscal 2006 consolidated financial statements. The Company has allocated $132.2 million and $45.0 million of its recorded goodwill
to the retail and direct segments, respectively. The Company does not have identifiable assets separated by segment.

The following table
contains key financial information of the Company's business segments (in thousands):



|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|---------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                         |  | Three Months Ended |         |   | Six Months Ended |  
|                                         |  | June 30,2007       |         |   | July 1,2006      |   |         | June 30,2007 |  |   | July 1,2006 |  
|Sales:                                   |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Retail                                   |  | $                  | 115,136 |   |                  | $ | 100,010 |              |  | $ | 232,414     |   |  | $ | 203,995 |  
|Direct                                   |  |                    | 18,286  |   |                  |   | 18,404  |              |  |   | 38,552      |   |  |   | 41,719  |  
|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Net sales                                |  |                    | 133,422 |   |                  |   | 118,414 |              |  |   | 270,966     |   |  |   | 245,714 |  
|Income from operations:                  |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Retail                                   |  |                    | 16,808  |   |                  |   | 14,928  |              |  |   | 36,024      |   |  |   | 31,432  |  
|Direct                                   |  |                    | 3,343   |   |                  |   | 4,279   |              |  |   | 7,212       |   |  |   | 7,260   |  
|Corporate costs                          |  |                    | (13,366 | ) |                  |   | (12,757 | )            |  |   | (25,698     | ) |  |   | (23,337 | )
|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Income from operations                   |  |                    | 6,785   |   |                  |   | 6,450   |              |  |   | 17,538      |   |  |   | 15,355  |  
|Other                                    |  |                    |        |   |                  |   |        |              |  |   |            |   |  |   | (366    | )
|Interest income                          |  |                    | (48     | ) |                  |   | (84     | )            |  |   | (103        | ) |  |   | (221    | )
|Interest expense                         |  |                    | 5,642   |   |                  |   | 5,578   |              |  |   | 11,147      |   |  |   | 11,090  |  
|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Income before provision for income taxes |  |                    | 1,191   |   |                  |   | 956     |              |  |   | 6,494       |   |  |   | 4,852   |  
|Provision for income taxes               |  |                    | 275     |   |                  |   | 339     |              |  |   | 2,333       |   |  |   | 1,619   |  
|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|Net income                               |  | $                  | 916     |   |                  | $ | 617     |              |  | $ | 4,161       |   |  | $ | 3,233   |  
|                                         |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  



|12. | Income Taxes
|--- | ------------

The Company and its subsidiaries file
income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. On December 31, 2006 (the first day of the 2007 Fiscal year) the Company adopted the provisions of FIN 48. As a result of the implementation of FIN 48, the
Company recognized a liability for uncertain tax positions of $2.2 million which is included in Other long-term liabilities in the condensed consolidated financial statements. This liability was established as an adjustment to goodwill for $1.4
million, as a cumulative effect adjustment to reduce the December 31, 2006 beginning balance of retained earnings for $0.2 million, and through the reclassification of $0.6 million of previously recorded accruals for uncertain tax benefits and
certain deferred items. The Company does not currently expect any significant change relative to its accrual for uncertain tax positions in the next twelve months.

The total amount of unrecognized tax benefits that if recognized would affect the income tax provision was approximately $0.5 million at December 30, 2006 as well as June 30, 2007.

The Company recognizes interest related to uncertain tax positions in income tax expense. At June 30, 2007, the Company has recorded approximately
$65,000 of accrued interest included in the aforementioned liability for uncertain tax positions for potential payments related to that liability. Interest recognized through the condensed consolidated statements of operations for the three and six
months ended June 30, 2007 was approximately $16,000.



16



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##### Table of Contents

The Company and its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various
states. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2002 and for state examinations before 2002. However, the tax authorities still have the ability to review the relevance of net
operating loss carryforwards created in closed years if such tax attributes are utilized in open years (subsequent to 2002).



|13. | Supplemental Guarantor Information
|--- | ----------------------------------

The payment
obligations of VSI under the Notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by: Holdings (VSIs parent), Direct (VSIs sole subsidiary), all of VSIs future restricted domestic subsidiaries,
and Parent. The Notes and the guarantees are VSIs, Holdings and Directs second priority senior secured obligations. They rank equally with all of VSIs, Holdings and Directs existing and future senior indebtedness
and rank senior to all of VSIs, Holdings and Directs existing and future subordinated indebtedness. The Notes and the guarantees are effectively subordinate to all of VSIs, Holdings and Directs existing first
priority senior secured indebtedness, to the extent of the collateral securing such indebtedness, including indebtedness under the Revolving Credit Facility.

The indenture governing the Notes restricts the ability of VSI and Direct to incur additional debt, pay dividends and make distributions, make certain investments, repurchase stock, incur liens, enter into
transactions with affiliates, enter into sale and lease back transactions, merge, or consolidate or transfer or sell assets.

The following
supplemental financial information sets forth, on a consolidating basis, balance sheets, statements of operations, and statements of cash flows for Holdings, VSI and Direct:



17



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##### Table of Contents

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 2007

(In thousands,
except share data)



|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|------------------------------------------------------------------------------------------ |  | ---------------- | ------- | ------------- | - | --------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                                                                           |  | VS Holdings,Inc. |         | VS DirectInc. |   | VitaminShoppeIndustriesInc. |  | Eliminations |         |  | Consolidated
|ASSETS                                                                                     |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Current assets:                                                                            |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                                                                  |  | $                |        |               | $ | 961                         |  | $            | 633     |  | $            |         |   |  | $ | 1,594  
|Inventories                                                                                |  |                  |        |               |   | 13,685                      |  |              | 72,040  |  |              |         |   |  |   | 85,725 
|Prepaid expenses and other current assets                                                  |  |                  | 112     |               |   | 145                         |  |              | 9,554   |  |              |         |   |  |   | 9,811  
|Intercompany receivable                                                                    |  |                  |        |               |   | 180,463                     |  |              | 182,844 |  |              | (363,307 | ) |  |   |       
|Deferred income taxes                                                                      |  |                  |        |               |   |                            |  |              | 631     |  |              |         |   |  |   | 631    
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total current assets                                                                       |  |                  | 112     |               |   | 195,254                     |  |              | 265,702 |  |              | (363,307 | ) |  |   | 97,761 
|Property and equipment, net                                                                |  |                  |        |               |   | 12,584                      |  |              | 48,155  |  |              |         |   |  |   | 60,739 
|Goodwill                                                                                   |  |                  |        |               |   |                            |  |              | 177,248 |  |              |         |   |  |   | 177,248
|Other intangibles, net                                                                     |  |                  |        |               |   |                            |  |              | 68,205  |  |              |         |   |  |   | 68,205 
|Other assets:                                                                              |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Deferred financing fees, net of accumulated amortization of $1,786                         |  |                  |        |               |   |                            |  |              | 5,802   |  |              |         |   |  |   | 5,802  
|Other                                                                                      |  |                  |        |               |   |                            |  |              | 1,567   |  |              |         |   |  |   | 1,567  
|Security deposits                                                                          |  |                  |        |               |   | 20                          |  |              | 1,528   |  |              |         |   |  |   | 1,548  
|Deferred income tax asset                                                                  |  |                  | 514     |               |   | 241                         |  |              |        |  |              | (755     | ) |  |   |       
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total other assets                                                                         |  |                  | 514     |               |   | 261                         |  |              | 8,897   |  |              | (755     | ) |  |   | 8,917  
|Investment in Subsidiary                                                                   |  |                  | 175,333 |               |   |                            |  |              | 35,930  |  |              | (211,263 | ) |  |   |       
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total assets                                                                               |  | $                | 175,959 |               | $ | 208,099                     |  | $            | 604,137 |  | $            | (575,325 | ) |  | $ | 412,870
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Current liabilities:                                                                       |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Revolving credit facility                                                                  |  | $                |        |               | $ |                            |  | $            | 6,500   |  | $            |         |   |  | $ | 6,500  
|Intercompany payable                                                                       |  |                  | 17,538  |               |   | 165,248                     |  |              | 180,521 |  |              | (363,307 | ) |  |   |       
|Accounts payable                                                                           |  |                  |        |               |   |                            |  |              | 22,857  |  |              |         |   |  |   | 22,857 
|Deferred sales                                                                             |  |                  |        |               |   | 952                         |  |              | 5,285   |  |              |         |   |  |   | 6,237  
|Accrued salaries and related expenses                                                      |  |                  |        |               |   |                            |  |              | 3,151   |  |              |         |   |  |   | 3,151  
|Accrued interest                                                                           |  |                  |        |               |   |                            |  |              | 2,672   |  |              |         |   |  |   | 2,672  
|Other accrued expenses                                                                     |  |                  | 26      |               |   | 3,489                       |  |              | 5,419   |  |              |         |   |  |   | 8,934  
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                                                                  |  |                  | 17,564  |               |   | 169,689                     |  |              | 226,405 |  |              | (363,307 | ) |  |   | 50,351 
|Long-term debt                                                                             |  |                  |        |               |   |                            |  |              | 165,000 |  |              |         |   |  |   | 165,000
|Deferred income taxes                                                                      |  |                  |        |               |   | 713                         |  |              | 21,328  |  |              | (755     | ) |  |   | 21,286 
|Other long term liabilities                                                                |  |                  |        |               |   |                            |  |              | 2,150   |  |              |         |   |  |   | 2,150  
|Deferred rent                                                                              |  |                  |        |               |   | 1,767                       |  |              | 13,921  |  |              |         |   |  |   | 15,688 
|Commitments and contingencies                                                              |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Stockholders equity:                                                                      |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Common stock, $ 0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding |  |                  |        |               |   |                            |  |              |        |  |              |         |   |  |   |       
|Additional paid-in capital                                                                 |  |                  | 156,233 |               |   | 20,165                      |  |              | 166,791 |  |              | (186,956 | ) |  |   | 156,233
|Accumulated other comprehensive income                                                     |  |                  | 856     |               |   |                            |  |              | 856     |  |              | (856     | ) |  |   | 856    
|Retained earnings                                                                          |  |                  | 1,306   |               |   | 15,765                      |  |              | 7,686   |  |              | (23,451  | ) |  |   | 1,306  
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                                                                 |  |                  | 158,395 |               |   | 35,930                      |  |              | 175,333 |  |              | (211,263 | ) |  |   | 158,395
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity                                                 |  | $                | 175,959 |               | $ | 208,099                     |  | $            | 604,137 |  | $            | (575,325 | ) |  | $ | 412,870
|                                                                                           |  |                  |         |               |   |                             |  |              |         |  |              |          |   |  |   |        



18



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##### Table of Contents

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 30, 2006

(In
thousands, except share data)



|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------- | - | --------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | ------- | -
|                                                                                          |  | VS Holdings,Inc. |         |   | VS Direct |   | VitaminShoppeIndustriesInc. |  | Eliminations |         |  | Consolidated |         
|ASSETS                                                                                    |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Current assets:                                                                           |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Cash and cash equivalents                                                                 |  | $                |        |   |           | $ | 885                         |  | $            | 587     |  | $            |         |   |  | $ | 1,472   |  
|Inventories                                                                               |  |                  |        |   |           |   | 13,072                      |  |              | 69,103  |  |              |         |   |  |   | 82,175  |  
|Prepaid expenses and other current assets                                                 |  |                  |         |   |           |   | 99                          |  |              | 10,962  |  |              |          |   |  |   | 11,061  |  
|Intercompany receivable                                                                   |  |                  |        |   |           |   | 135,685                     |  |              | 145,581 |  |              | (281,266 | ) |  |   |        |  
|Deferred income taxes                                                                     |  |                  |        |   |           |   | 704                         |  |              | 1,297   |  |              |         |   |  |   | 2,001   |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total current assets                                                                      |  |                  |        |   |           |   | 150,445                     |  |              | 227,530 |  |              | (281,266 | ) |  |   | 96,709  |  
|Property and equipment, net                                                               |  |                  |        |   |           |   | 13,115                      |  |              | 48,816  |  |              |         |   |  |   | 61,931  |  
|Goodwill                                                                                  |  |                  |        |   |           |   |                            |  |              | 175,896 |  |              |         |   |  |   | 175,896 |  
|Other intangibles, net                                                                    |  |                  |        |   |           |   |                            |  |              | 68,205  |  |              |         |   |  |   | 68,205  |  
|Other assets:                                                                             |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Deferred financing fees, net of accumulated amortization of $ 1,206                       |  |                  |        |   |           |   |                            |  |              | 6,382   |  |              |         |   |  |   | 6,382   |  
|Other                                                                                     |  |                  |        |   |           |   |                            |  |              | 895     |  |              |         |   |  |   | 895     |  
|Security deposits                                                                         |  |                  |        |   |           |   | 20                          |  |              | 1,582   |  |              |         |   |  |   | 1,602   |  
|Deferred income tax asset                                                                 |  |                  | 401     |   |           |   | 630                         |  |              | 12,869  |  |              | (13,900  | ) |  |   |        |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total other assets                                                                        |  |                  | 401     |   |           |   | 650                         |  |              | 21,728  |  |              | (13,900  | ) |  |   | 8,879   |  
|Investment in Subsidiary                                                                  |  |                  | 170,674 |   |           |   |                            |  |              | 30,795  |  |              | (201,469 | ) |  |   |        |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total assets                                                                              |  | $                | 171,075 |   |           | $ | 164,210                     |  | $            | 572,970 |  | $            | (496,635 | ) |  | $ | 411,620 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Current liabilities:                                                                      |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Revolving credit facility                                                                 |  | $                |        |   |           | $ |                            |  | $            | 6,500   |  | $            |         |   |  | $ | 6,500   |  
|Intercompany payable                                                                      |  |                  | 17,536  |   |           |   | 127,986                     |  |              | 135,744 |  |              | (281,266 | ) |  |   |        |  
|Accounts payable                                                                          |  |                  |        |   |           |   | 18                          |  |              | 26,654  |  |              |         |   |  |   | 26,672  |  
|Deferred sales                                                                            |  |                  |        |   |           |   | 1,605                       |  |              | 9,870   |  |              |         |   |  |   | 11,475  |  
|Accrued salaries and related expenses                                                     |  |                  |        |   |           |   | 9                           |  |              | 4,321   |  |              |         |   |  |   | 4,330   |  
|Accrued interest                                                                          |  |                  |        |   |           |   |                            |  |              | 2,624   |  |              |         |   |  |   | 2,624   |  
|Other accrued expenses                                                                    |  |                  | 33      |   |           |   | 707                         |  |              | 6,082   |  |              |         |   |  |   | 6,822   |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total current liabilities                                                                 |  |                  | 17,569  |   |           |   | 130,325                     |  |              | 191,795 |  |              | (281,266 | ) |  |   | 58,423  |  
|Long-term debt                                                                            |  |                  |        |   |           |   |                            |  |              | 165,000 |  |              |         |   |  |   | 165,000 |  
|Deferred income taxes                                                                     |  |                  |        |   |           |   | 1,390                       |  |              | 32,754  |  |              | (13,900  | ) |  |   | 20,244  |  
|Deferred rent                                                                             |  |                  |        |   |           |   | 1,700                       |  |              | 12,747  |  |              |         |   |  |   | 14,447  |  
|Commitments and contingencies                                                             |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Stockholders equity:                                                                     |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Common stock, $0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding |  |                  |        |   |           |   |                            |  |              |        |  |              |         |   |  |   |        |  
|Additional paid-in capital                                                                |  |                  | 155,642 |   |           |   | 20,165                      |  |              | 166,791 |  |              | (186,956 | ) |  |   | 155,642 |  
|Other comprehensive income                                                                |  |                  | 478     |   |           |   |                            |  |              | 478     |  |              | (478     | ) |  |   | 478     |  
|(Accumulated deficit) retained earnings                                                   |  |                  | (2,614  | ) |           |   | 10,630                      |  |              | 3,405   |  |              | (14,035  | ) |  |   | (2,614  | )
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total stockholders equity                                                                |  |                  | 153,506 |   |           |   | 30,795                      |  |              | 170,674 |  |              | (201,469 | ) |  |   | 153,506 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  
|Total liabilities and stockholders equity                                                |  | $                | 171,075 |   |           | $ | 164,210                     |  | $            | 572,970 |  | $            | (496,635 | ) |  | $ | 411,620 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |              |         |  |              |          |   |  |   |         |  



19



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED

JUNE 30, 2007

(In thousands)



|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |       |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                 |  | $                |      |   |               | $ | 24,232 |                             |  | $ | 109,190      |   |  | $            |       |   |  | $ | 133,422 |  
|Commissions                                               |  |                  |      |   |               |   | 6,259  |                             |  |   | 1,572        |   |  |              | (7,831 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |      |   |               |   | 17,295 |                             |  |   | 73,827       |   |  |              | (956   | ) |  |   | 90,166  |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Gross profit                                              |  |                  |      |   |               |   | 13,196 |                             |  |   | 36,935       |   |  |              | (6,875 | ) |  |   | 43,256  |  
|Selling, general and administrative expenses              |  |                  | 417   |   |               |   | 9,095  |                             |  |   | 33,478       |   |  |              | (6,875 | ) |  |   | 36,115  |  
|Related party expenses (see Note 10)                      |  |                  |      |   |               |   |       |                             |  |   | 356          |   |  |              |       |   |  |   | 356     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (417  | ) |               |   | 4,101  |                             |  |   | 3,101        |   |  |              |       |   |  |   | 6,785   |  
|Other                                                     |  |                  |      |   |               |   |       |                             |  |   |             |   |  |              |       |   |  |   |        |  
|Interest income                                           |  |                  |      |   |               |   | (2     | )                           |  |   | (46          | ) |  |              |       |   |  |   | (48     | )
|Interest expense                                          |  |                  |      |   |               |   |       |                             |  |   | 5,642        |   |  |              |       |   |  |   | 5,642   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (417  | ) |               |   | 4,103  |                             |  |   | (2,495       | ) |  |              |       |   |  |   | 1,191   |  
|(Benefit) provision for income taxes                      |  |                  | (162  | ) |               |   | 1,589  |                             |  |   | (1,152       | ) |  |              |       |   |  |   | 275     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (255  | ) |               |   | 2,514  |                             |  |   | (1,343       | ) |  |              |       |   |  |   | 916     |  
|Equity in net earnings of subsidiary                      |  |                  | 1,171 |   |               |   |       |                             |  |   | 2,514        |   |  |              | (3,685 | ) |  |   |        |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                |  | $                | 916   |   |               | $ | 2,514  |                             |  | $ | 1,171        |   |  | $            | (3,685 | ) |  | $ | 916     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED

JUNE 30, 2007

(In thousands)



|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |       |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                 |  | $                |      |   |               | $ | 48,755 |                             |  | $ | 222,211      |   |  | $            |        |   |  | $ | 270,966 |  
|Commissions                                               |  |                  |      |   |               |   | 12,616 |                             |  |   | 2,968        |   |  |              | (15,584 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |      |   |               |   | 34,163 |                             |  |   | 148,432      |   |  |              | (1,859  | ) |  |   | 180,736 |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                              |  |                  |      |   |               |   | 27,208 |                             |  |   | 76,747       |   |  |              | (13,725 | ) |  |   | 90,230  |  
|Selling, general and administrative expenses              |  |                  | 591   |   |               |   | 18,828 |                             |  |   | 66,329       |   |  |              | (13,725 | ) |  |   | 72,023  |  
|Related party expenses (see Note 10)                      |  |                  |      |   |               |   |       |                             |  |   | 669          |   |  |              |        |   |  |   | 669     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (591  | ) |               |   | 8,380  |                             |  |   | 9,749        |   |  |              |        |   |  |   | 17,538  |  
|Other                                                     |  |                  |      |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   |        |  
|Interest income                                           |  |                  |      |   |               |   | (5     | )                           |  |   | (98          | ) |  |              |        |   |  |   | (103    | )
|Interest expense                                          |  |                  |      |   |               |   |       |                             |  |   | 11,147       |   |  |              |        |   |  |   | 11,147  |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (591  | ) |               |   | 8,385  |                             |  |   | (1,300       | ) |  |              |        |   |  |   | 6,494   |  
|(Benefit) provision for income taxes                      |  |                  | (229  | ) |               |   | 3,250  |                             |  |   | (688         | ) |  |              |        |   |  |   | 2,333   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (362  | ) |               |   | 5,135  |                             |  |   | (612         | ) |  |              |        |   |  |   | 4,161   |  
|Equity in net earnings of subsidiary                      |  |                  | 4,523 |   |               |   |       |                             |  |   | 5,135        |   |  |              | (9,658  | ) |  |   |        |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                |  | $                | 4,161 |   |               | $ | 5,135  |                             |  | $ | 4,523        |   |  | $            | (9,658  | ) |  | $ | 4,161   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



20



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED

JULY 1, 2006

(In thousands)



|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ---- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |      |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                 |  | $                |     |   |               | $ | 20,130 |                             |  | $ | 98,284       |   |  | $            |       |   |  | $ | 118,414 |  
|Commissions                                               |  |                  |     |   |               |   | 5,982  |                             |  |   | 1,374        |   |  |              | (7,356 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |     |   |               |   | 15,596 |                             |  |   | 64,168       |   |  |              | (816   | ) |  |   | 78,948  |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Gross profit                                              |  |                  |     |   |               |   | 10,516 |                             |  |   | 35,490       |   |  |              | (6,540 | ) |  |   | 39,466  |  
|Selling, general and administrative expenses              |  |                  | 186  |   |               |   | 7,993  |                             |  |   | 31,024       |   |  |              | (6,540 | ) |  |   | 32,663  |  
|Related party expenses (see Note 10)                      |  |                  |     |   |               |   |       |                             |  |   | 353          |   |  |              |       |   |  |   | 353     |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (186 | ) |               |   | 2,523  |                             |  |   | 4,113        |   |  |              |       |   |  |   | 6,450   |  
|Other                                                     |  |                  |     |   |               |   |       |                             |  |   |             |   |  |              |       |   |  |   |        |  
|Interest income                                           |  |                  | (11  | ) |               |   | (5     | )                           |  |   | (68          | ) |  |              |       |   |  |   | (84     | )
|Interest expense                                          |  |                  |     |   |               |   |       |                             |  |   | 5,578        |   |  |              |       |   |  |   | 5,578   |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (175 | ) |               |   | 2,528  |                             |  |   | (1,397       | ) |  |              |       |   |  |   | 956     |  
|(Benefit) provision for income taxes                      |  |                  | (59  | ) |               |   | 863    |                             |  |   | (465         | ) |  |              |       |   |  |   | 339     |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (116 | ) |               |   | 1,665  |                             |  |   | (932         | ) |  |              |       |   |  |   | 617     |  
|Equity in net earnings of subsidiary                      |  |                  | 733  |   |               |   |       |                             |  |   | 1,665        |   |  |              | (2,398 | ) |  |   |        |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                |  | $                | 617  |   |               | $ | 1,665  |                             |  | $ | 733          |   |  | $            | (2,398 | ) |  | $ | 617     |  
|                                                          |  |                  |      |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED

JULY 1, 2006

(In thousands)



|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |       |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                 |  | $                |      |   |               | $ | 40,727 |                             |  | $ | 204,987      |   |  | $            |        |   |  | $ | 245,714 |  
|Commissions                                               |  |                  |      |   |               |   | 13,624 |                             |  |   | 2,726        |   |  |              | (16,350 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |      |   |               |   | 29,907 |                             |  |   | 135,310      |   |  |              | (1,658  | ) |  |   | 163,559 |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                              |  |                  |      |   |               |   | 24,444 |                             |  |   | 72,403       |   |  |              | (14,692 | ) |  |   | 82,155  |  
|Selling, general and administrative expenses              |  |                  | 221   |   |               |   | 18,098 |                             |  |   | 62,480       |   |  |              | (14,692 | ) |  |   | 66,107  |  
|Related party expenses (see Note 10)                      |  |                  |      |   |               |   |       |                             |  |   | 693          |   |  |              |        |   |  |   | 693     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (221  | ) |               |   | 6,346  |                             |  |   | 9,230        |   |  |              |        |   |  |   | 15,355  |  
|Other                                                     |  |                  |      |   |               |   |       |                             |  |   | (366         | ) |  |              |        |   |  |   | (366    | )
|Interest income                                           |  |                  | (27   | ) |               |   | (7     | )                           |  |   | (187         | ) |  |              |        |   |  |   | (221    | )
|Interest expense                                          |  |                  |      |   |               |   |       |                             |  |   | 11,090       |   |  |              |        |   |  |   | 11,090  |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (194  | ) |               |   | 6,353  |                             |  |   | (1,307       | ) |  |              |        |   |  |   | 4,852   |  
|(Benefit) provision for income taxes                      |  |                  | (65   | ) |               |   | 2,120  |                             |  |   | (436         | ) |  |              |        |   |  |   | 1,619   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (129  | ) |               |   | 4,233  |                             |  |   | (871         | ) |  |              |        |   |  |   | 3,233   |  
|Equity in net earnings of subsidiary                      |  |                  | 3,362 |   |               |   |       |                             |  |   | 4,233        |   |  |              | (7,595  | ) |  |   |        |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                |  | $                | 3,233 |   |               | $ | 4,233  |                             |  | $ | 3,362        |   |  | $            | (7,595  | ) |  | $ | 3,233   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



21



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED

JUNE 30, 2007

(In thousands)



|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|                                                                                  |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Cash flows from operating activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Net income                                                                        |  | $                | 4,161  |   |               | $ | 5,135  |                             |  | $ | 4,523        |   |  | $            | (9,658 | ) |  | $ | 4,161  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Loss on disposal of fixed assets                                                  |  |                  |       |   |               |   |       |                             |  |   | 6            |   |  |              |       |   |  |   | 6      |  
|Depreciation and amortization                                                     |  |                  |       |   |               |   | 1,119  |                             |  |   | 6,702        |   |  |              |       |   |  |   | 7,821  |  
|Deferred income taxes                                                             |  |                  | (113   | ) |               |   | 416    |                             |  |   | 2,136        |   |  |              |       |   |  |   | 2,439  |  
|Deferred rent                                                                     |  |                  |       |   |               |   | 67     |                             |  |   | 855          |   |  |              |       |   |  |   | 922    |  
|Equity compensation expense                                                       |  |                  | 591    |   |               |   |       |                             |  |   |             |   |  |              |       |   |  |   | 591    |  
|Equity in earnings of subsidiary                                                  |  |                  | (4,523 | ) |               |   |       |                             |  |   | (5,135       | ) |  |              | 9,658  |   |  |   |       |  
|Changes in operating assets and liabilities:                                      |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Inventories                                                                       |  |                  |       |   |               |   | (613   | )                           |  |   | (2,937       | ) |  |              |       |   |  |   | (3,550 | )
|Prepaid expenses and other current assets                                         |  |                  | (112   | ) |               |   | (46    | )                           |  |   | 1,727        |   |  |              |       |   |  |   | 1,569  |  
|Intercompany                                                                      |  |                  |       |   |               |   | (7,516 | )                           |  |   | 7,516        |   |  |              |       |   |  |   |       |  
|Other non-current assets                                                          |  |                  |       |   |               |   |       |                             |  |   | 33           |   |  |              |       |   |  |   | 33     |  
|Accounts payable                                                                  |  |                  |       |   |               |   | (18    | )                           |  |   | (3,797       | ) |  |              |       |   |  |   | (3,815 | )
|Accrued expenses and other current liabilities                                    |  |                  | (4     | ) |               |   | 2,120  |                             |  |   | (6,240       | ) |  |              |       |   |  |   | (4,124 | )
|Other long-term liabilities                                                       |  |                  |       |   |               |   |       |                             |  |   | 16           |   |  |              |       |   |  |   | 16     |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Net cash provided by operating activities                                         |  |                  |       |   |               |   | 664    |                             |  |   | 5,405        |   |  |              |       |   |  |   | 6,069  |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Cash flows from investing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Capital expenditures                                                              |  |                  |       |   |               |   | (588   | )                           |  |   | (5,359       | ) |  |              |       |   |  |   | (5,947 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Net cash used in investing activities                                             |  |                  |       |   |               |   | (588   | )                           |  |   | (5,359       | ) |  |              |       |   |  |   | (5,947 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Cash flows from financing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Borrowings under revolving credit agreement                                       |  |                  |       |   |               |   |       |                             |  |   | 4,000        |   |  |              |       |   |  |   | 4,000  |  
|Repayments of borrowing under revolving credit agreement                          |  |                  |       |   |               |   |       |                             |  |   | (4,000       | ) |  |              |       |   |  |   | (4,000 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Net cash flows from financing activities                                          |  |                  |       |   |               |   |       |                             |  |   |             |   |  |              |       |   |  |   |       |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Net increase in cash and cash equivalents                                         |  |                  |       |   |               |   | 76     |                             |  |   | 46           |   |  |              |       |   |  |   | 122    |  
|Cash and cash equivalents beginning of period                                     |  |                  |       |   |               |   | 885    |                             |  |   | 587          |   |  |              |       |   |  |   | 1,472  |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  
|Cash and cash equivalents end of period                                           |  | $                |       |   |               | $ | 961    |                             |  | $ | 633          |   |  | $            |       |   |  | $ | 1,594  |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |        |  



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##### Table of Contents

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 1, 2006

(In thousands)



|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                                                  |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Cash flows from operating activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                                        |  | $                | 3,233  |   |               | $ | 4,233  |                             |  | $ | 3,362        |   |  | $            | (7,595 | ) |  | $ | 3,233   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Depreciation and amortization                                                     |  |                  |       |   |               |   | 1,017  |                             |  |   | 6,186        |   |  |              |       |   |  |   | 7,203   |  
|Deferred income taxes                                                             |  |                  | 18     |   |               |   | (144   | )                           |  |   | 1,564        |   |  |              |       |   |  |   | 1,438   |  
|Deferred rent                                                                     |  |                  |       |   |               |   | (40    | )                           |  |   | 1,060        |   |  |              |       |   |  |   | 1,020   |  
|Stock based compensation                                                          |  |                  | 184    |   |               |   |       |                             |  |   |             |   |  |              |       |   |  |   | 184     |  
|Equity in earnings of subsidiary                                                  |  |                  | (3,362 | ) |               |   |       |                             |  |   | (4,233       | ) |  |              | 7,595  |   |  |   |        |  
|Changes in operating assets and liabilities:                                      |  |                  |       |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   |         |  
|Inventories                                                                       |  |                  |       |   |               |   | (814   | )                           |  |   | (10,292      | ) |  |              |       |   |  |   | (11,106 | )
|Prepaid expenses and other current assets                                         |  |                  | (108   | ) |               |   | (947   | )                           |  |   | (1,596       | ) |  |              |       |   |  |   | (2,651  | )
|Intercompany                                                                      |  |                  | 49     |   |               |   | (4,393 | )                           |  |   | 4,344        |   |  |              |       |   |  |   |        |  
|Other non-current assets                                                          |  |                  |       |   |               |   | 13     |                             |  |   | (86          | ) |  |              |       |   |  |   | (73     | )
|Accounts payable                                                                  |  |                  |       |   |               |   | 287    |                             |  |   | 5,714        |   |  |              |       |   |  |   | 6,001   |  
|Accrued expenses and other current liabilities                                    |  |                  | (14    | ) |               |   | 1,494  |                             |  |   | (2,913       | ) |  |              |       |   |  |   | (1,433  | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash provided by operating activities                                         |  |                  |       |   |               |   | 706    |                             |  |   | 3,110        |   |  |              | 0      |   |  |   | 3,816   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Cash flows from investing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Capital expenditures                                                              |  |                  |       |   |               |   | (310   | )                           |  |   | (4,199       | ) |  |              |       |   |  |   | (4,509  | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash used in investing activities                                             |  |                  |       |   |               |   | (310   | )                           |  |   | (4,199       | ) |  |              |       |   |  |   | (4,509  | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Cash flows from financing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Repayments of borrowing under revolving credit agreement                          |  |                  |       |   |               |   |       |                             |  |   | (2,627       | ) |  |              |       |   |  |   | (2,627  | )
|Deferred financing fees                                                           |  |                  |       |   |               |   |       |                             |  |   | (375         | ) |  |              |       |   |  |   | (375    | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash used in financing activities                                             |  |                  |       |   |               |   |       |                             |  |   | (3,002       | ) |  |              |       |   |  |   | (3,002  | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                  |       |   |               |   | 396    |                             |  |   | (4,091       | ) |  |              |       |   |  |   | (3,695  | )
|Cash and cash equivalents beginning of period                                     |  |                  |       |   |               |   |       |                             |  |   | 4,784        |   |  |              |       |   |  |   | 4,784   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Cash and cash equivalents end of period                                           |  | $                |       |   |               | $ | 396    |                             |  | $ | 693          |   |  | $            |       |   |  | $ | 1,089   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the
condensed consolidated financial statements and notes thereto included as part of this quarterly report on Form 10-Q. This report contains forward-looking statements that are based upon current expectations. We sometimes identify forward-looking
statements with such words as may, will, expect, anticipate, estimate, seek, intend, believe or similar words concerning future events. The
forward-looking statements contained herein, include, without limitation, statements concerning future revenue sources and concentration, gross profit margins, selling and marketing expenses, research and development expenses, general and
administrative expenses, capital resources, additional financings or borrowings and additional losses and are subject to risks and uncertainties including, but not limited to, those discussed below and elsewhere in this quarterly report on Form 10-Q
that could cause actual results to differ materially from the results contemplated by these forward-looking statements. We also urge you to carefully review the risk factors set forth in Item 1A- Risk Factors in our Annual Report on Form
10-K filed on March 30, 2007 with the Securities and Exchange Commission.

Company Overview

We are a leading specialty retailer and direct marketer of vitamins, minerals, herbs, supplements, sports nutrition and other health and wellness
products. As of June 30, 2007, we operated 322 stores located in 31 states and the District of Columbia and sold direct to consumers through our nationally circulated catalog and our web site, www.vitaminshoppe.com. We target the dedicated,
well-informed vitamin, mineral and supplement (VMS) consumer and differentiate ourselves by providing our customers with an extensive selection of high quality products sold at competitive prices and value-added customer service. We
offer our customers a selection of over 20,000 SKUs from over 400 different nationally brands, as well as our proprietary Vitamin Shoppe, BodyTech and MD Select brands. Our broad product offering enables us to provide our customers with a selection
of products that is not readily available at other specialty retailers, supermarkets, chain drug stores or mass merchants. We believe our extensive product offering, together with our well-known brand name and emphasis on product education and
customer service, help us bond with our target customer and serve as a foundation for strong customer loyalty.

Our Company was founded as
a single store in New York, New York in 1977. Our Vitamin Shoppe branded products were introduced in 1989. We were acquired in November 2002 by Bear Stearns Merchant Manager II, LLC (BSMB) and other investors.

Segment Information

We sell our products through two
business segments: retail, which is our retail store format, and direct, which consists of our catalog and internet formats.

Retail. We believe we operate a unique retail store format in the VMS industry, which has been successful in diverse geographic and demographic markets, ranging from urban locations in New York City to suburban locations in
Plantation, Florida and Manhattan Beach, California. Our stores carry a broad selection of VMS products and are staffed with highly experienced and knowledgeable associates who are able to educate our customers about product features and assist in
product selection.

Since the beginning of 2003, we have aggressively pursued new store growth. During this period through June 30,
2007, we opened 196 new stores, expanding our presence in our existing markets as well as entering new markets such as California, Texas, and Michigan. Our new stores typically have reached sales more consistent with our mature store base over a
three to four year time period.

Direct. Our direct segment consists of our catalog and internet operations from our web site,
www.vitaminshoppe.com. The direct segment enables us to service customers outside our retail markets and provides us with data that we use to assist us in the selection of future store locations.

Our catalog is mailed each month to our catalog customers contained in our Frequent Buyer Program database. Our catalog is currently designed to appeal
to the dedicated, well-informed VMS consumer and includes a broad assortment of approximately 12,000 to 14,000 of our most popular SKUs. In addition, we mail out approximately 2.4 million catalogs throughout the year to prospective customers
and non-active customers in our Frequent Buyer Program database. Our Web site offers our customers online access to our full assortment of over 20,000 SKUs.



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Trends and Other Factors Affecting Our Business

Our performance is affected by trends that affect the VMS industry, including demographic, health and lifestyle preferences. Changes in these trends and
other factors, which we may not foresee, may also impact our business. For example, our industry is

subject to potential regulatory actions, such as the
ban on ephedra, and other legal matters that affect the viability of a given product. Volatile consumer trends, such as those described in the following paragraph, as well as the overall impact on consumer spending, can dramatically affect
purchasing patterns. Our business allows us to respond to changing industry trends by introducing new products and adjusting our product mix and sales incentives. We will continue to diversify our product lines to offer items less susceptible to the
effects of economic conditions and not as readily substitutable, such as teas, lotions and spring water.

Sales of weight management products are generally more sensitive to consumer trends, resulting in higher volatility than our other products. Our sales of weight management products have been significantly influenced
by the rapid increase and subsequent decline of products such as those containing ephedra, low carb products and Cortislim®. Accordingly, we launch new weight management products on an
ongoing basis in response to prevailing market conditions and consumer demands. As the rate of obesity increases and as the general public becomes increasingly more health conscious, we expect the demand for weight management products, albeit
volatile, to continue to be strong in the near term.

In addition to the weight management product lines, we intend to continue our focus
in meeting the demands of an increasingly aging population, the effects of increasing costs of traditional healthcare and a rapidly growing fitness conscious public.

Our historical results have also been significantly influenced by our new store openings. Since the beginning of 2003, we have opened 199 stores and operate 325 stores located in 31 states and the District of Columbia
as of July 30, 2007.

Our stores typically require three to four years to mature, generating lower store level sales in the initial
years than our mature stores. As a result, new stores generally have a negative impact on our overall operating margin and sales per square foot. As our recently opened stores mature, we expect them to contribute meaningfully to our sales.

Critical Accounting Policies

Our
significant accounting policies are described in Note 4 of the notes to the Consolidated Financial Statements included in our financial statements for Fiscal 2006, Fiscal 2005, and Fiscal 2004, filed with the Securities and Exchange Commission on
March 30, 2007, in our Annual Report on Form 10-K. A discussion of our critical accounting policies and estimates are included in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K.
Management has discussed the development and selection of these policies with the Audit Committee of our Board of Directors, and the Audit Committee of our Board of Directors has reviewed its disclosures relating to them.

Effective December 31, 2006, we adopted FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109. FIN 48 provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. In accordance with FIN 48, we recognized an adjustment of $2.2 million, increasing our liability for uncertain tax positions, interest, and penalties, and reducing the December 31, 2006 balance of retained earnings as well increasing
the balance of goodwill. See Note 12 to our condensed consolidated financial statements for more information on income taxes.

It is our
policy to recognize, the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority, the impact of an uncertain income tax position on our income tax return. Management makes certain assumptions and
judgements regarding certain tax positions, and as such uncertain income tax position will not be recognized if in management's opinion it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least
quarterly) and adjustments are made as events occur that warrant adjustments to those positions. We record interest expense payable, as well as penalties payable, if any, to relevant tax authorities as income tax expense.

With the exception of the adoption of FIN 48, management believes there have been no material changes to the critical accounting policies or estimates
reported in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the audited financial statements for the fiscal year ended December 30, 2006.

General Definitions for Operating Results

Net
Sales consist of sales from comparable stores and non comparable stores, as well as sales made directly to our catalog and internet customers. A store is included in comparable store sales after four hundred and ten days of operation.

Cost of goods soldincludes the cost of inventory sold, markdowns, costs of warehousing and distribution and store occupancy costs.
Warehousing and distribution costs include freight on internally transferred merchandise, rent for the distribution center and costs associated with our buying department and distribution facility, including payroll, which are capitalized into
inventory and then expensed as merchandise is sold. Store occupancy costs include rent, common area maintenance, real estate taxes and utilities.



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Gross profitis net sales minus cost of goods sold.

Selling, general and administrative expensesconsist of operating payroll and related benefits, advertising and promotion expense, depreciation
and other selling, general and administrative expenses.

Related party expensesconsist of management fees incurred and paid to
BSMB, and consulting fees incurred and paid to Renaissance Brands, Inc.

Income from operations consists of gross profit minus
selling, general and administrative expenses, and related party expenses.

Otherincludes activity relating to our interest rate
swap that we entered into in Fiscal 2005.

Interest incomerepresents income earned from highly liquid investments purchased with an
original maturity of three months or less.

Interest expense includes interest on the Notes, interest on the Revolving Credit
Facility, letters of credit fees, as well as amortization of financing costs.

Key Performance Indicators and Statistics

We use a number of key indicators of financial condition and operating results to evaluate the performance of our business, including the following (in
thousands):



|                                       |  |                    |         |   |                  |   |         |              |  |   |             |   |  |   |         |  
|-------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                       |  | Three Months Ended |         |   | Six Months Ended |  
|                                       |  | June 30,2007       |         |   | July 1,2006      |   |         | June 30,2007 |  |   | July 1,2006 |  
|Net sales                              |  | $                  | 133,422 |   |                  | $ | 118,414 |              |  | $ | 270,966     |   |  | $ | 245,714 |  
|Increase in comparable store net sales |  |                    | 8.3     | % |                  |   | 7.1     | %            |  |   | 7.2         | % |  |   | 5.7     | %
|Gross profit as a percent of net sales |  |                    | 32.4    | % |                  |   | 33.3    | %            |  |   | 33.3        | % |  |   | 33.4    | %
|Income from operations                 |  | $                  | 6,785   |   |                  | $ | 6,450   |              |  | $ | 17,538      |   |  | $ | 15,355  |  
|EBITDA (1)                             |  | $                  | 10,878  |   |                  | $ | 10,070  |              |  | $ | 25,701      |   |  | $ | 23,427  |  



|(1) | EBITDA represents, respectively, net income before provision for income tax, interest income and expense, and depreciation and amortization, including recognition of deferred rent.
Since EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered as a performance measure prepared in accordance with GAAP, such as operating income, net income and cash flows from operating activities. We
believe that EBITDA provides additional information of our operating performance and our ability to meet our future debt service, capital expenditure and working capital requirements. Furthermore, our executive compensation plans base incentive
compensation payments on our EBITDA performance measured against budget. Other companies may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. The table below includes a
reconciliation from net income to EBITDA.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                           |  |                    |        |   |                  |   |        |              |  |   |             |   |  |   |        |  
|---------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ------------ |  | - | ----------- | - |  | - | ------ | -
|                                                           |  | Three Months Ended |        |   | Six Months Ended |  
|                                                           |  | June 30,2007       |        |   | July 1,2006      |   |        | June 30,2007 |  |   | July 1,2006 |  
|Statement of Operations Data:                              |  |                    |        |   |                  |   |        |              |  |   |             |   |  |   |        |  
|Net income                                                 |  | $                  | 916    |   |                  | $ | 617    |              |  | $ | 4,161       |   |  | $ | 3,233  |  
|Provision for income taxes                                 |  |                    | 275    |   |                  |   | 339    |              |  |   | 2,333       |   |  |   | 1,619  |  
|Interest income                                            |  |                    | (48    | ) |                  |   | (84    | )            |  |   | (103        | ) |  |   | (221   | )
|Interest expense                                           |  |                    | 5,642  |   |                  |   | 5,578  |              |  |   | 11,147      |   |  |   | 11,090 |  
|Depreciation and amortization, including deferred rent (a) |  |                    | 4,093  |   |                  |   | 3,620  |              |  |   | 8,163       |   |  |   | 7,706  |  
|                                                           |  |                    |        |   |                  |   |        |              |  |   |             |   |  |   |        |  
|EBITDA                                                     |  | $                  | 10,878 |   |                  | $ | 10,070 |              |  | $ | 25,701      |   |  | $ | 23,427 |  
|                                                           |  |                    |        |   |                  |   |        |              |  |   |             |   |  |   |        |  



|(a) | Excludes amortization of deferred financing fees, which are included in interest expense in this table.
|--- | ---------------------------------------------------------------------------------------------------------



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Because we also consider EBITDA useful as a liquidity measure, we present the following reconciliation of EBITDA to our
net cash provided by operating activities:



|                                               |  |                  |         |   |             |   |         |  
|---------------------------------------------- |  | ---------------- | ------- | - | ----------- | - | ------- | -
|                                               |  | Six Months Ended |        
|                                               |  | June 30,2007     |         |   | July 1,2006 |  
|EBITDA                                         |  | $                | 25,701  |   |             | $ | 23,427  |  
|Interest expense, net                          |  |                  | (11,044 | ) |             |   | (10,869 | )
|Provision for income taxes                     |  |                  | (2,333  | ) |             |   | (1,619  | )
|Loss on disposal of fixed assets               |  |                  | 6       |   |             |   |        |  
|Deferred income taxes                          |  |                  | 2,439   |   |             |   | 1,438   |  
|Deferred financing fees amortization and other |  |                  | 580     |   |             |   | 517     |  
|Equity compensation expense                    |  |                  | 591     |   |             |   | 184     |  
|Changes in operating assets and liabilities:   |  |                  |         |   |             |   |         |  
|Inventories                                    |  |                  | (3,550  | ) |             |   | (11,106 | )
|Prepaid expenses and other current assets      |  |                  | 1,569   |   |             |   | (2,651  | )
|Other non-current assets                       |  |                  | 33      |   |             |   | (73     | )
|Accounts payable                               |  |                  | (3,815  | ) |             |   | 6,001   |  
|Accrued expenses and other current liabilities |  |                  | (4,124  | ) |             |   | (1,433  | )
|Other long-term liabilities                    |  |                  | 16      |   |             |   |        |  
|                                               |  |                  |         |   |             |   |         |  
|Net cash provided by operating activities      |  | $                | 6,069   |   |             | $ | 3,816   |  
|                                               |  |                  |         |   |             |   |         |  

The following table shows the growth in our network of stores during the three and six months
ended June 30, 2007 and July 1, 2006:



|                                   |  |                    |  |                  |  |              |  |             |  
|---------------------------------- |  | ------------------ |  | ---------------- |  | ------------ |  | ----------- | -
|                                   |  | Three Months Ended |  | Six Months Ended | 
|                                   |  | June 30,2007       |  | July 1,2006      |  | June 30,2007 |  | July 1,2006 |  
|Store Data:                        |  |                    |  |                  |  |              |  |             |  
|Stores open at beginning of period |  | 316                |  | 283              |  | 306          |  | 275         |  
|Stores opened                      |  | 6                  |  | 9                |  | 16           |  | 18          |  
|Stores closed                      |  |                   |  |                 |  |             |  | (1          | )
|                                   |  |                    |  |                  |  |              |  |             |  
|Stores open at end of period       |  | 322                |  | 292              |  | 322          |  | 292         |  
|                                   |  |                    |  |                  |  |              |  |             |  



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Results of Operations

The information presented below is for the three and six months ended June 30, 2007 and July 1, 2006 and was derived from our condensed consolidated financial statements, which, in the opinion of management,
includes all adjustments necessary for a fair presentation of our financial position and operating results for such periods and as of such dates. The following table summarizes our results of operations for the three and six months ended
June 30, 2007 and July 1, 2006 as a percentage of net sales:



|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   
|-------------------------------------------- |  | ------------------ | - |  | ---------------- | -- |  | ------------ | -- |  | ----------- | --
|                                             |  | Three Months Ended |   |  | Six Months Ended |   
|                                             |  | June 30,2007       |   |  | July 1,2006      |    |  | June 30,2007 |    |  | July 1,2006 |   
|Net sales                                    |  | 100.0              | % |  | 100.0            | %  |  | 100.0        | %  |  | 100.0       | % 
|Cost of goods sold                           |  | 67.6               | % |  | 66.7             | %  |  | 66.7         | %  |  | 66.6        | % 
|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   
|Gross profit                                 |  | 32.4               | % |  | 33.3             | %  |  | 33.3         | %  |  | 33.4        | % 
|Selling, general and administrative expenses |  | 27.1               | % |  | 27.6             | %  |  | 26.6         | %  |  | 26.9        | % 
|Related party expenses                       |  | 0.2                | % |  | 0.3              | %  |  | 0.2          | %  |  | 0.3         | % 
|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   
|Income from operations                       |  | 5.1                | % |  | 5.4              | %  |  | 6.5          | %  |  | 6.2         | % 
|Other                                        |  | 0.0                | % |  | 0.0              | %  |  | 0.0          | %  |  | (0.1        | %)
|Interest income                              |  | 0.0                | % |  | (0.1             | %) |  | (0.0         | %) |  | (0.1        | %)
|Interest expense                             |  | 4.2                | % |  | 4.7              | %  |  | 4.1          | %  |  | 4.5         | % 
|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   
|Income before provision for income taxes     |  | 0.9                | % |  | 0.8              | %  |  | 2.4          | %  |  | 2.0         | % 
|Provision for income taxes                   |  | 0.2                | % |  | 0.3              | %  |  | 0.9          | %  |  | 0.7         | % 
|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   
|Net income                                   |  | 0.7                | % |  | 0.5              | %  |  | 1.5          | %  |  | 1.3         | % 
|                                             |  |                    |   |  |                  |    |  |              |    |  |             |   

Three Months Ended June 30, 2007 Compared To Three Months Ended July 1, 2006

Net Sales

Net sales increased $15.0
million, or 12.7%, to $133.4 million for the three months ended June 30, 2007 compared to $118.4 million for the three months ended July 1, 2006. The increase was the result of an increase in our comparable store sales, new sales from our
non-comparable stores partially offset by a decrease in our direct sales.

Retail

Net sales from our retail stores increased $15.1 million, or 15.1%, to $115.1 million for the three months ended June 30, 2007 compared to $100.0
million for the three months ended July 1, 2006. We operated 322 stores as of June 30, 2007 compared to 292 stores as of July 1, 2006. Our overall store sales for the three months ended June 30, 2007 increased due to
non-comparable store sales increases of $6.8 million and an increase in comparable store sales of $8.3 million, or 8.3%. Our overall sales increased primarily in the categories of supplements, which increased $2.9 million, or 11.6%; sports
nutrition, which increased by $9.0 million, or 39.4%; and herbs, which increased $1.4 million, or 7.4%. These increases were partially offset by a decrease in our other-books/accessories category, which decreased by $0.2 million.

The supplements category, which is among the largest selling product categories in our mix, experienced significant growth in sales of essential fatty
acids, or EFAs. This increase was offset in part by relatively flat net sales of CoQ10 and Glucosamine (in terms of dollars as actual units sales were up), which are two large components included in our supplement category. Sales of CoQ10 and
Glucosamine were flat due to price reductions this quarter compared to the same quarter last year. Given the current trend in EFA consumption, and the growing number of publications and recommendations regarding the heart-health benefits of fish
oils (such as by The American Heart Association and US National Institutes of Health), we expect sales of EFAs to continue to be strong in this fiscal year. Product sales in the sports nutrition category increased at a greater rate than the overall
increase in net sales during the second quarter of Fiscal 2007, and has done so for the past five quarters. We believe this is due largely to the growth in the fitness-conscious market as well as the diversity of new product introductions and
innovations in technology.

Direct

Net sales to our direct customers were relatively unchanged at $18.3 million for the three months ended June 30, 2007 compared to $18.4 million for the three months ended July 1, 2006, representing a 0.6%
change. Sales were relatively flat due to an overall increase in our internet sales of approximately $1.2 million offset by a decrease in our catalog sales. The increase in web-based sales was largely due to an increase in promotional activities in
this quarter as compared to the quarter ending July 1, 2006. We believe Catalog purchasing in general is declining in popularity as a purchasing medium, especially in the wake of the introduction of online shopping. In addition, as we continue
to open more stores in new markets, some catalog customers choose to shop at our retail locations.



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Cost of Goods Sold

Cost of goods sold, which includes product, warehouse and distribution and occupancy costs, increased $11.2 million, or 14.2%, to $90.2 million for the three months ended June 30, 2007 compared to $78.9 million
for the three months ended July 1, 2006. The components of cost of goods sold are explained below. Costs of goods sold as a percentage of net sales was 67.6% for the three months ended June 30, 2007 compared to 66.7% for the three months
ended July 1, 2006.

Product costs increased $9.4 million, or 15.3%, to $70.6 million for the three months ended June 30, 2007,
compared to $61.2 million for the three months ended July 1, 2006 as a result of greater sales this quarter as compared to the quarter ending July 1, 2006. Product costs as a percentage of net sales increased to 52.9% for the three months
ended June 30, 2007 compared to 51.7% for the three months ended July 1, 2006. The 1.2% increase as a percentage of sales was largely a result of an increase of sports nutrition as a component of our product mix by 4.8% as a percentage of
sales for the quarter ended June 30, 2007 as compared to the quarter ended July 1, 2006. Sports nutrition products generally have a higher cost to selling price ratio and thus had the impact of increasing product costs as a percentage of
sales for the quarter ended June 30, 2007.

Warehouse and distribution costs increased $0.5 million, or 11.1%, to $4.6 million for the
three months ended June 30, 2007 compared to $4.1 million for the three months ended July 1, 2006. Warehouse and distribution costs as a percentage of net sales decreased to 3.4% for the three months ended June 30, 2007 compared to
3.5% for the three months ended July 1, 2006. The decrease of warehouse and distribution costs as a percentage of sales for the quarter ended June 30, 2007, as compared to the quarter ended July 1, 2006, was primarily due to
experiencing greater efficiencies of our centralized distribution facilities over a growing sales and customer base. The gains from these efficiencies were partially offset by increased transportation costs, primarily reflecting fuel costs and
shipping expenses attributable to the greater concentration of new stores operating in locations at greater distances from our distribution center, such as the southwest and west coast.

Occupancy costs increased $1.4 million, or 10.2%, to $15.0 million for the three months ended June 30, 2007 compared to $13.6 million for the three
months ended July 1, 2006. Occupancy costs as a percentage of net sales decreased to 11.2% for the three months ended June 30, 2007 compared to 11.5% for the three months ended July 1, 2006. This decrease as a percentage of sales is
mainly attributable to the maturation of the existing store base and entering into fewer leases for new stores for the quarter ended June 30, 2007, as compared to nine for the quarter ended July 1, 2006.

Gross Profit

As a result of the foregoing,
gross profit increased $3.8 million, or 9.6%, to $43.3 million for the three months ended June 30, 2007 compared to $39.5 million for the three months ended July 1, 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses,
including operating payroll and related benefits, advertising and promotion expense, depreciation and other selling, general and administrative expenses, increased $3.5 million, or 10.6%, to $36.1 million for the three months ended June 30,
2007, compared to $32.7 million for the three months ended July 1, 2006. The components of selling, general and administrative expenses are explained below. Selling, general and administrative expenses as a percentage of net sales for the three
months ended June 30, 2007 decreased to 27.1% compared to 27.6% for the three months ended July 1, 2006.

Operating payroll and
related benefits increased $1.1 million, or 8.8%, to $13.2 million for the three months ended June 30, 2007 compared to $12.1 million for the three months ended July 1, 2006. Operating payroll and related benefits expenses as a percentage
of net sales decreased to 9.9% during the three months ended June 30, 2007 compared to 10.2% for the three months ended July 1, 2006. The decrease as a percentage of sales was primarily due to greater sales per hour relative to net sales
for the quarter ended June 30, 2007, as compared to the quarter ended July 1, 2006.

Advertising and promotion expenses increased
$0.8 million, or 27.0%, to $3.6 million for the three months ended June 30, 2007 compared to $2.8 million for the three months ended July 1, 2006. Advertising and promotion expenses as a percentage of net sales increased to 2.7% for the
three months ended June 30, 2007 compared to 2.4% for the three months ended July 1, 2006. The increase was primarily due to consulting fees of approximately $0.1 million incurred for branding, an increase of $0.3 million for our Healthy
Awards promotion program, as well as an increase in grand opening promotions of approximately $0.1 million due to the opening of stores in more advertising intense markets. In the aggregate these incremental costs total 0.3% as a percentage of net
sales.

Other selling, general and administrative expenses, which include depreciation and amortization expense, increased $1.6 million, or
9.2%, to $19.3 million for the three months ended June 30, 2007 compared to $17.8 million for the three months ended July 1, 2006. The increase was due primarily to increases in depreciation and amortization of approximately $0.3 million,
increases in equity compensation expense of approximately $0.4 million, and increases in payroll expenses of $0.7 million. The increase in payroll was



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comprised of payroll expenses resulting from an increased corporate staff this quarter as compared to the same quarter last year. In addition to the above,
there was an increase in credit card fees of approximately $0.2 million due to increased customer purchases this quarter, as compared to the same quarter last year. Other selling, general and administrative expenses as a percentage of net sales
decreased to 14.5% during the three months ended June 30, 2007 compared to 15.0% for the three months ended July 1, 2006, due to increased efficiencies of our corporate infrastructure relative to our increased store base.

Related Party Expenses

Related party expenses
were unchanged at $0.4 million for the quarter ended June 30, 2007, as well as the quarter ended July 1, 2007 (see Note 10 to our condensed consolidated financial statements).

Income from Operations

As a result of the foregoing, income from operations increased $0.3
million, or 5.2%, to $6.8 million for the three months ended June 30, 2007 compared to $6.5 million for the three months ended July 1, 2006. Income from operations as a percentage of net sales decreased to 5.1% for the three months ended
June 30, 2007 compared to 5.4% for the three months ended July 1, 2006.

Retail

Income from operations for the retail segment increased $1.9 million, or 12.6%, to $16.8 million for the three months ended June 30, 2007 compared to
$14.9 million for the three months ended July 1, 2006. Income from operations as a percentage of net sales for the retail segment decreased to 14.6% for the three months ended June 30, 2007 compared to 14.9% for the three months ended
July 1, 2006. The decrease as a percentage of net sales was primarily due to a increase in product costs of 0.7% as a percentage of sales, as a result of the product mix favoring third party product as opposed to Vitamin Shoppe brand this
quarter as compared to the same quarter last year, offset by 0.6% decrease in occupancy costs as a percentage of sales this quarter compared to the same quarter last year. The decrease in occupancy costs as a percentage of sales is due largely to
the maturation of the existing store base and entering into fewer leases for new stores this quarter as compared to the same quarter last year.

Direct

Income from operations for the direct segment decreased $0.9 million, or 21.9%, to $3.3 million for the three
months ended June 30, 2007 compared to $4.3 million for the three months ended July 1, 2006. Income from operations as a percentage of net sales for the direct segment decreased to 18.3% for the three months ended June 30, 2007
compared to 23.3% for the three months ended July 1, 2006. This decrease in income from operations as a percentage of sales was due mainly to a 5.0% increase in product costs as a percentage of sales this quarter as compared to the same quarter
last year, primarily as a result of increases in promotional pricing to offer our direct customers more competitive pricing.

Corporate Costs

Corporate costs increased by $0.6 million, or 4.8%, to $13.4 million for the three months ended
June 30, 2007 compared to $12.8 million for the three months ended July 1, 2006. Corporate costs as a percentage of net sales decreased to 10.0% for the three months ended June 30, 2007 compared to 10.8% for the three months ended
July 1, 2006. The dollar increase was primarily due to increases in depreciation and amortization of approximately $0.3 million, and increases in equity compensation expense of approximately $0.4 million. The 0.6 % decrease as a percentage
of net sales for the quarter ended June 30, 2007, as compared to the quarter ended July 1, 2006, was primarily due to economies of scale gained through our stable corporate infrastructure relative to the increase in our store and customer
base.

Other

There were no
amounts recorded in Other for the three months ended June 30, 2007 and for the three months ended July 1, 2006.

Interest Income

Interest income decreased $36,000 to $48,000 for the three months ended June 30, 2007 compared to $84,000 for the three months ended
July 1, 2006. The decrease was due to having a lower average balance in our interest bearing investment account during the three months ended June 30, 2007, as compared to the three months ended July 1, 2006.



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Interest Expense

Interest expense remained level at $5.6 million for the three months ended June 30, 2007 compared to the three months ended July 1, 2006.

Provision for Income Taxes

We recognized $0.3 million of income tax expense during the three
months ended June 30, 2007 compared with $0.3 million for the three months ended July 1, 2006. The effective tax rate for the three months ended June 30, 2007 was 23.1%, which included a change in estimate arising from changes in
certain state tax laws. The effective tax rate before the change in estimate was 39.9% for the quarter ended June 30, 2007, compared to 35.5% for the three months ended July 1, 2006. The effective rate, excluding the aforementioned change
in estimate, for the current period, as compared to the same period last year, was greater primarily due to changes to our blended state tax rates which resulted from changes in our state apportionment factors for the three months ended
June 30, 2007 as compared to the three months ended July 1, 2006.

Net Income

As a result of the foregoing, we generated net income of $0.9 million for the three months ended June 30, 2007 compared to $0.6 million for the three
months ended July 1, 2006.

Six Months Ended June 30, 2007 Compared To Six Months Ended July 1, 2006

Net Sales

Net sales increased $25.3 million,
or 10.3%, to $271.0 million for the six months ended June 30, 2007 compared to $245.7 million for the six months ended July 1, 2006. The increase was the result of an increase in our comparable store sales, new sales from our
non-comparable stores partially offset by a decrease in our direct sales.

Retail

Net sales from our retail stores increased $28.4 million, or 13.9%, to $232.4 million for the six months ended June 30, 2007 compared to $204.0
million for the six months ended July 1, 2006. We operated 322 stores as of June 30, 2007 compared to 292 stores as of July 1, 2006. Our overall store sales for the six months ended June 30, 2007 increased due to non-comparable
store sales increases of $13.9 million and an increase in comparable store sales of $14.5 million, or 7.2%. Our overall sales increased primarily in the categories of supplements, which increased $4.8 million, or 9.1%; sports nutrition, which
increased by $17.3 million, or 38.8%; herbs, which increased $3.2 million, or 8.1%; Multi Vitamins, which increased $1.1 million, or 7.4%; and Weight Management, which increased $1.0 million, or 7.0%. These increases were partially offset by a
decrease in our other-books/accessories category, which decreased by $0.4 million.

The supplements category, which is among the largest
selling product categories in our mix, experienced significant growth in sales of essential fatty acids, or EFAs. This increase was offset in part by relatively flat net sales of CoQ10 and Glucosamine (in terms of dollars as actual units sales were
up), which are two large components included in our supplement category. The decreases in net sales of CoQ10 and Glucosamine was due mainly to the discounting of our VSB product. Given the current trend in EFA consumption, and the growing number of
publications and recommendations regarding the heart-health benefits of fish oils (such as by The American Heart Association and US National Institutes of Health), we expect sales of EFAs to continue to be strong in this fiscal year. Product sales
in the sports nutrition category increased at a greater rate than the overall increase in net sales during the first half of Fiscal 2007, and has done so since early Fiscal 2006. We believe this is due largely to the growth in the fitness-conscious
market as well as the diversity of new product introductions and innovations in technology.

Direct

Net sales to our direct customers decreased $3.2 million, or 7.6%, to $38.6 million for the six months ended June 30, 2007 compared to $41.7 million
for the six months ended July 1, 2006. This decrease was attributable to the overall decrease in our catalog sales which was offset in part by our internet sales which increased by approximately $1.1 million for the six months ended
June 30, 2007, as compared to the period ended July 1, 2006. The increase in internet sales is largely due to the increase in promotional activities in this period as compared to the same period last year, as well as a shift in catalog
purchasing to the internet as we are experiencing a migration of consumer traffic from catalog to our website. In addition, as we continue to open more stores in more markets, and more customers have the ability to shop at our stores, some customers
who would normally purchase our products by catalog opted to purchase our products at a retail location.



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Cost of Goods Sold

Cost of goods sold, which includes product, warehouse and distribution and occupancy costs, increased $17.2 million, or 10.5%, to $180.7 million for the six months ended June 30, 2007 compared to $163.6 million
for the six months ended July 1, 2006. The components of cost of goods sold are explained below. Costs of goods sold as a percentage of net sales increased to 66.7% for the six months ended June 30, 2007 compared to 66.6% for the six
months ended July 1, 2006.

Product costs increased $13.1 million, or 10.1%, to $141.8 million for the six months ended June 30,
2007, compared to $128.7 million for the six months ended July 1, 2006 as a result of greater sales this period as compared to the same period last year. Product costs as a percentage of net sales were relatively flat at 52.3% for the six
months ended June 30, 2007 compared to 52.4% for the six months ended July 1, 2006.

Warehouse and distribution costs increased
$1.2 million, or 15.2%, to $9.5 million for the six months ended June 30, 2007 compared to $8.2 million for the six months ended July 1, 2006. Warehouse and distribution costs as a percentage of net sales increased to 3.5% for the six
months ended June 30, 2007 compared to 3.3% for the six months ended July 1, 2006. The increase of warehouse and distribution costs as a percentage of sales was primarily due to proportionately greater shipping expenses attributable to the
greater concentration of new stores operating in locations at greater distances from our distribution center, such as the southwest and west coast, in this period as compared to the same period last year.

Occupancy costs increased $2.9 million, or 10.8%, to $29.5 million for the six months ended June 30, 2007 compared to $26.6 million for the six
months ended July 1, 2006. Occupancy costs as a percentage of net sales remained relatively stable at 10.9% for the six months ended June 30, 2007 compared to 10.8% for the six months ended July 1, 2006.

Gross Profit

As a result of the foregoing,
gross profit increased $8.1 million, or 9.8%, to $90.2 million for the six months ended June 30, 2007 compared to $82.2 million for the six months ended July 1, 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses,
including operating payroll and related benefits, advertising and promotion expense, depreciation and other selling, general and administrative expenses, increased $5.9 million, or 8.9%, to $72.0 million for the six months ended June 30, 2007,
compared to $66.1 million for the six months ended July 1, 2006. The components of selling, general and administrative expenses are explained below. Selling, general and administrative expenses as a percentage of net sales for the six months
ended June 30, 2007 decreased to 26.6% compared to 26.9% for the six months ended July 1, 2006.

Operating payroll and related
benefits increased $2.3 million, or 9.8%, to $26.2 million for the six months ended June 30, 2007 compared to $23.9 million for the six months ended July 1, 2006. Operating payroll and related benefits expenses as a percentage of net sales
remained stable at 9.7% during the six months ended June 30, 2007, and for the six month ended July 1, 2006.

Advertising and
promotion expenses remained relatively unchanged at $8.2 million for the six months ended June 30, 2007 compared to $8.1 million for the six months ended July 1, 2006. Advertising and promotion expenses as a percentage of net sales
decreased to 3.0% for the six months ended June 30, 2007 compared to 3.3% for the six months ended July 1, 2006, as a result of the shift to web-based/direct advertising from print and television advertising which we initiated in the
second quarter of fiscal 2006.

Other selling, general and administrative expenses, which include depreciation and amortization expense,
increased $3.5 million, or 10.2%, to $37.6 million for the six months ended June 30, 2007 compared to $34.1 million for the six months ended July 1, 2006. The increase was due to increases in depreciation and amortization of approximately
$0.6 million; increases in equity compensation expense of approximately $0.4 million; increases in professional fees of $0.8 million, which were largely comprised of accounting and legal fees; an increase in insurance expense of $0.4 million, due to
operating more stores; and an increase in corporate payroll expense of $1.1 million, which was due to the increase in corporate staff during the six months ended June 30, 2007, as compared to the six months ended July 1, 2006. In addition,
there was an increase in credit card fees of approximately $0.3 million due to increased customer purchases this period, as compared to the same period last year. Other selling, general and administrative expenses as a percentage of net sales
remained level at 13.9% during the six months ended June 30, 2007 compared to 13.9% for the six months ended July 1, 2006.

Related Party
Expenses

Related party expenses decreased $24,000, or 3.5%, to $669,000 for the six months ended June 30, 2007, compared to
$693,000 for the six months ended July 1, 2006. The decrease is due to Renaissance Brands consulting fees incurred in 2006, which did not occur in the six months ended June 30, 2007 (see Note 10 to our condensed consolidated financial
statements).



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Income from Operations

As a result of the foregoing, income from operations increased $2.2 million, or 14.2%, to $17.5 million for the six months ended June 30, 2007 compared to $15.4 million for the six months ended July 1, 2006.
Income from operations as a percentage of net sales increased to 6.5% for the six months ended June 30, 2007 compared to 6.2% for the six months ended July 1, 2006.

Retail

Income from operations
for the retail segment increased $4.6 million, or 14.6%, to $36.0 million for the six months ended June 30, 2007 compared to $31.4 million for the six months ended July 1, 2006. Income from operations as a percentage of net sales for the
retail segment increased to 15.5% for the six months ended June 30, 2007 compared to 15.4% for the six months ended July 1, 2006. The increase as a percentage of net sales was primarily due primarily to a gaining efficiencies through our
centralized distribution center and corporate infrastructure relative to our increasing retail store base.

Direct

Income from operations for the direct segment decreased 0.7% to $7.2 million for the six months ended June 30, 2007 compared to
$7.3 million for the six months ended July 1, 2006. Income from operations as a percentage of net sales for the direct segment increased to 18.7% for the six months ended June 30, 2007 compared to 17.4% for the six months ended
July 1, 2006. This increase in income from operations as a percentage of sales was due mainly to a 0.5% decrease in advertising as a percentage of sales, primarily due to a promotional program implemented in the first half of Fiscal 2006 which
we did not repeat in the six months ended June 30, 2007, an 0.8% decrease in payroll expense as a percentage of sales, due to staff re-sizing, and a 1.1% decrease in distribution costs as a percentage of sales. Offsetting this in part was an
increase in product costs of approximately 0.9% as a percentage of sales due to greater price promotions. Despite a decrease in net sales of $3.2 million during the six months ended June 30, 2007, as compared to the six months ended
July 1, 2006, substantial cost savings due to the decreases in overhead and advertising expenses led to increased profitability as a percentage of sales in the Direct segment this period.

Corporate Costs

Corporate
costs increased by $2.4 million, or 10.1%, to $25.7 million for the six months ended June 30, 2007 compared to $23.3 million for the six months ended July 1, 2006. Corporate costs as a percentage of net sales remained level at 9.5% for the
six months ended June 30, 2007 compared to 9.5% for the six months ended July 1, 2006. The dollar increase was due to increases in depreciation and amortization of approximately $0.6 million, increases in equity compensation expense of
approximately $0.4 million, increases in professional fees of $0.5 million, which were largely comprised of accounting and legal fees, and an increase in corporate payroll expense of $1.1 million, which was due to the increase in corporate staff in
this period as compared to the same period last year.

Other

There were no amounts recorded in Other for the six months ended June 30, 2007. The amounts recorded in Other for the period ended July 1, 2006, represent income related to our interest rate swap which did
not qualify for hedge accounting during that period.

Interest Income

Interest income decreased $118,000, or 53.4%, to $103,000 for the six months ended June 30, 2007 compared to $221,000 for the six months ended
July 1, 2006. The decrease was due to having a lower average balance in our interest bearing investment account during the six months ended June 30, 2007, as compared to the six months ended July 1, 2006.

Interest Expense

Interest expense remained
level at $11.1 million for the six months ended June 30, 2007 compared to the six months ended July 1, 2006.

Provision for Income Taxes

We recognized $2.3 million of income tax expense during the six months ended June 30, 2007 compared with $1.6 million for the
six months ended July 1, 2006. The effective tax rate for the six months ended June 30, 2007 was 35.9% which included a change in estimate arising from changes in certain state tax laws. The effective tax rate before the change in estimate
was 39.0% for the six months ended June 30, 2007, compared to 33.4% for the six months ended July 1, 2006. The effective tax rate, excluding the aforementioned change in estimate, for the current period, as compared to the same period last
year, was greater primarily due to changes to our blended state tax rates which resulted from changes in our state apportionment factors for the six months ended June 30, 2007, as compared to the six months ended July 1, 2006.



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Net Income

As a result of the foregoing, we generated net income of $4.2 million for the six months ended June 30, 2007 compared to $3.2 million for the six months ended July 1, 2006.

Key Indicators of Liquidity and Capital Resources

The following table sets forth key indicators of our liquidity and capital resources:



|                                                           |  |                  |         |   |                  |   |         |  
|---------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                           |  | June 30,2007     |         |   | December 30,2006 |  
|Balance Sheet Data:                                        |  |                  |         |   |                  |   |         |  
|Cash and cash equivalents                                  |  | $                | 1,594   |   |                  | $ | 1,472   |  
|Working capital                                            |  |                  | 47,410  |   |                  |   | 38,286  |  
|Total assets                                               |  |                  | 412,870 |   |                  |   | 411,620 |  
|Total debt                                                 |  |                  | 171,500 |   |                  |   | 171,500 |  
|Stockholders' equity                                       |  |                  | 158,395 |   |                  |   | 153,506 |  
|                                                           | 
|                                                           |  | Six Months Ended |        
|                                                           |  | June 30,2007     |         |   | July 1, 2006     |  
|Other Information:                                         |  |                  |         |   |                  |   |         |  
|Depreciation and amortization, including deferred rent (1) |  | $                | 8,743   |   |                  | $ | 8,223   |  
|Cash Flows Provided By (Used In):                          |  |                  |         |   |                  |   |         |  
|Operating activities                                       |  | $                | 6,069   |   |                  | $ | 3,816   |  
|Investing activities                                       |  |                  | (5,947  | ) |                  |   | (4,509  | )
|Financing activities                                       |  |                  |        |   |                  |   | (3,002  | )
|                                                           |  |                  |         |   |                  |   |         |  
|Total cash received (used) by the Company                  |  | $                | 122     |   |                  | $ | (3,695  | )
|                                                           |  |                  |         |   |                  |   |         |  



|(1) | Also includes amortization of deferred financing fees.
|--- | ------------------------------------------------------

Liquidity and
Capital Resources

Our primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures
related primarily to the construction of new stores. Historically, we have financed these requirements from internally generated cash flow. We believe that the cash generated by operations and cash and cash equivalents, together with the borrowing
availability under the Revolving Credit Facility, will be sufficient to meet our working capital needs for the next twelve months, including investments made and expenses incurred in connection with our store growth plans, systems development and
store improvements.

We plan to spend between $10 million and $14 million in capital expenditures during Fiscal 2007, of which $9 million
to $11 million will be in connection with our store growth and improvement plans with the remainder of $1 million to $3 million being used for all other expenditures. Of the total capital expenditures projected for Fiscal 2007 we have already
invested $5.9 million during the six months ended June 30, 2007. We plan on opening approximately 40 to 45 stores during Fiscal 2007, of which we have already opened 16 stores as of June 30, 2007. Our working capital requirements for
merchandise inventory will continue to increase as we continue to open additional stores. Currently, our practice is to establish an inventory level of approximately $165,000 in cost for each of our stores. Additionally, 60 day payment terms have
been extended to us by some of our suppliers allowing us to effectively manage our inventory and working capital.

We were in compliance
with all debt covenants as of June 30, 2007. At June 30, 2007, we had $1.6 million in cash and cash equivalents and $47.4 million in working capital. The $9.1 million increase in working capital compared to December 30, 2006, was
primarily driven by cash flows from operating activities. At December 30, 2006, we had $1.5 million in cash and cash equivalents and $38.3 million in working capital.



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Cash Provided by Operating Activities

Cash provided by operating activities was $6.1 million and $3.8 million for the six months ended June 30, 2007 and July 1, 2006, respectively.
The $2.3 million increase was primarily due to a $7.6 million decrease in cash used for inventory expenditures, due to better managing of our inventory purchasing and replenishment cycle, offset in part by a $2.7 million decrease in cash flows from
accrued expenses and other liabilities.

Cash Used in Investing Activities

Net cash used in investing activities during the six months ended June 30, 2007 and July 1, 2006 was $5.9 million and $4.5 million,
respectively. Capital expenditures were used for the construction of 16 new stores during the six months ended June 30, 2007 and for improvements of existing stores, as well as continuous improvements to our information systems technologies.
Capital expenditures were used for the construction of 18 new stores during the six months ended July 1, 2006 and improvements of existing stores. Of the $1.4 million increase in expenditures for the six months ended June 30, 2007, as
compared to July 1, 2006, expenditures related to expanding and enhancing our internet infrastructure were approximately $0.9 million.

Cash Used
in by Financing Activities

Net cash flows from financing activities was $0.0 million for the six months ended June 30, 2007, as
compared to net cash used in financing activities of $3.0 million for the six months ended July 1, 2006. The zero impact of financing activities on cash flows for the for the six months ended June 30, 2007 was due to the borrowing of $4.0
million from our revolving credit facility and subsequent repayment during the six month period, as compared to the same period last year where we repaid $2.7 million of our revolving credit facility.

2005 Second Priority Senior Secured Floating Rate Notes

On November 7, 2005, we completed our Second Priority Senior Secured Floating Rate Notes due 2012 (the Notes) offering for $165 million. The initial purchasers received delivery of the Notes on November 15, 2005.
Interest on the Notes will be set at a per annum rate equal to LIBOR plus 7.5%, which will be reset quarterly on February 15, May 15, August 15 and November 15 of each year, commencing on February 15, 2006. The
combined weighted average interest rate from December 31, 2006 through June 30, 2007 was 12.86%. Interest on overdue principal and interest and liquidated damages, if any, will accrue at a rate that is 1% higher than the then applicable
interest rate on the Notes. The indenture governing the Notes restricts the ability of Vitamin Shoppe Industries, Inc. (VSI) and VS Direct, Inc. (Direct) to incur additional debt, pay dividends and make distributions, make
certain investments, repurchase stock, incur liens, enter into transactions with affiliates, enter into sale and lease back transactions, merge, or consolidate or transfer or sell assets. See Description of Exchange Notes in our
Registration Statement on Form S-4 filed with the Securities and Exchange Commission on June 13, 2006, as amended.

Revolving Credit Facility

On November 15, 2005 VSI entered into a Revolving Credit Facility for $50.0 million, and has the option to increase or decrease the
facility size by $25.0 million, subject to certain conditions. The availability under the Revolving Credit Facility is subject to a borrowing base calculated on the basis of certain eligible accounts receivable from credit card companies and
inventory of VSI and Direct. The obligations thereunder are secured by a security interest in substantially all of the assets of Holdings, VSI and Direct. The Revolving Credit Facility provides for affirmative and negative covenants affecting VSI,
Holdings and Direct. The Revolving Credit Facility restricts, among other things, our ability to incur indebtedness, create or permit liens on our assets, declare or pay dividends and certain other restricted payments, consolidate, merge or
recapitalize, acquire or sell assets, make certain investments, loans or other advances, enter into transactions with affiliates, change our line of business, and restricts the types of hedging activities we can enter into. Our previous credit
facility had the terms as described in Note 6 in our notes to condensed consolidated financial statements, and was replaced with our Revolving Credit Facility. The Revolving Credit Facility has a maturity date of November 15, 2010.

The borrowings under the revolving credit facility accrue interest, at our option at the rate per annum announced from time to time by the agent as
its prime rate, or at a per annum rate equal to between 1.25% and 1.75% (depending on excess availability) above the adjusted Eurodollar rate. The combined weighted average interest rate from December 31, 2006 through June 30,
2007 was 6.61%.

Direct and Holdings provided guarantees in respect of VSIs obligations in respect of the Credit Facility, and VSI
and Holdings have provided guarantees in respect of Directs obligations in respect of the Credit Facility.



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We entered into an interest rate swap during December 2005 on a portion of our Notes, which did not
qualify for hedge accounting under Statement of Financial Accounting Standards (SFAS) No. 133. As a result, the fair market value of the interest rate swap was marked to market during the first quarter of Fiscal 2006 with a
corresponding adjustment to other expense. The interest rate swap subsequently qualified for hedge accounting at the end of the first quarter of Fiscal 2006. The fair market value of $1.3 million is recorded in other assets on the condensed
consolidated balance sheet at June 30, 2007. Of the increase in market value of $0.7 million in Fiscal 2007, $0.4 million was recorded in accumulated other comprehensive income, and $0.3 million is recorded in deferred tax liability.

Contractual Obligations and Commercial Commitments

As of June 30, 2007, our lease commitments and contractual obligations are as follows (in thousands):



|                         |  |       |         |                     |   |               |  |                  |         |                |   |           |  |            |       |  |   |     |  |   |   
|------------------------ |  | ----- | ------- | ------------------- | - | ------------- |  | ---------------- | ------- | -------------- | - | --------- |  | ---------- | ----- |  | - | --- |  | - | --
|Fiscal year ending       |  | Total |         | OperatingLeases (1) |   | Long-TermDebt |  | InterestPayments |         | CreditFacility |   | Severance |  | AutoLeases
|Remainder of Fiscal 2007 |  | $     | 45,230  |                     | $ | 35,407        |  | $                |        |                | $ | 9,691     |  | $          |      |  | $ | 113 |  | $ | 20
|2008                     |  |       | 66,014  |                     |   | 45,614        |  |                  |        |                |   | 20,361    |  |            |      |  |   |    |  |   | 39
|2009                     |  |       | 63,946  |                     |   | 43,599        |  |                  |        |                |   | 20,311    |  |            |      |  |   |    |  |   | 36
|2010                     |  |       | 69,611  |                     |   | 42,840        |  |                  |        |                |   | 20,271    |  |            | 6,500 |  |   |    |  |   |  
|2011                     |  |       | 59,721  |                     |   | 39,511        |  |                  |        |                |   | 20,210    |  |            |      |  |   |    |  |   |  
|Thereafter               |  |       | 308,338 |                     |   | 123,127       |  |                  | 165,000 |                |   | 20,211    |  |            |      |  |   |    |  |   |  
|                         |  |       |         |                     |   |               |  |                  |         |                |   |           |  |            |       |  |   |     |  |   |   
|                         |  | $     | 612,861 |                     | $ | 330,098       |  | $                | 165,000 |                | $ | 111,055   |  | $          | 6,500 |  | $ | 113 |  | $ | 95
|                         |  |       |         |                     |   |               |  |                  |         |                |   |           |  |            |       |  |   |     |  |   |   



|(1) | The operating leases included in the above table do not include contingent rent based upon sales volume, which represented less than 1% of our minimum lease obligations during
Fiscal 2007. In addition, the operating leases do not include common area maintenance costs or real estate taxes that are paid to the landlord during the year, which combined represented approximately 15.3% of our minimum lease obligations for the
six months ending June 30, 2007. Offsetting these operating lease commitments is sub-lease income of approximately $0.1 million per year, which we receive for one of our store locations, that will aggregate $0.4 million by the end of 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Severance.As of June 30, 2007 we had a liability of $113,000 primarily related to severance payments for two
executives terminated in the first and second quarters of Fiscal 2007. We have an aggregate contingent liability of up to $2.0 million related to potential severance payments for five executives as of June 30, 2007 pursuant to their respective
employment agreements. These potential severance payments are not reflected in the table above. We have an aggregate contingent liability of up to $1.8 million related to potential severance payments for eight employees as of June 30, 2007
following a change in control pursuant to their respective employment agreements. These potential severance payments are not reflected in the table above.

Auto Leases. At June 30, 2007, we operated three delivery vans from our distribution center that make daily deliveries to stores in New York, New Jersey and Connecticut. The terms of these leases generally
run for 48 months and expire at various times through November 2009.

Excluded from the above commitments is $2.2 million of long-term
liabilities related to uncertain tax positions pursuant to FIN 48.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or
operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that have or are reasonably likely have a material current or future effect on our
financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Effects of Inflation

We do not believe that our sales or operating results have been materially impacted by inflation
during the periods presented in our financial statements. There can be no assurance, however, that our sales or operating results will not be impacted by inflation in the future.



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Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to
measure and report selected financial assets and liabilities at fair value, with the objective to reduce both the complexity in accounting for financial instruments and mitigate the volatility in reported earnings caused by measuring related assets
and liabilities differently. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the requirements of SFAS No. 159 and have not yet determined the impact, if
any, the adoption will have on our financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. This statement defines and establishes a framework for measuring fair value, and expands fair value disclosures. It does not require any new fair value measurements. The intent of this statement is
to increase consistency of definitions and comparability of methods of fair value measurements, as well as to enhance fair value disclosure. This statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007. We do not expect the adoption to have a material impact on our financial condition, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. This interpretation clarifies the
evaluation methods and accounting treatment for tax positions to be taken or expected to be taken in the future. It will require that we determine certain tax positions to be sustainable under an examination, and the measurement of the impact for
positions deemed to be non-sustainable. We adopted FIN 48 in the first quarter of Fiscal 2007. Please refer to Critical Accounting Policies section for a detailed discussion on the impact of the adoption.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in interest rates and commodity prices. Changes in these factors could cause fluctuations in the
results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to interest rate risks. Other than on our Notes, which carry a floating interest rate, we do not use derivative financial instruments in
connection with these market risks. Our risk management activities are described below.

Our market risks relate primarily to changes in
interest rates. Our revolving credit facility and Notes carry floating interest rates that are tied to LIBOR and the prime rate and, therefore, our statement of operations and our cash flows will be exposed to changes in interest rates. A one
percentage point change in LIBOR would cause an increase to interest expense of approximately $0.2 million as the total potential increase of $1.7 million would be offset by our hedging activities described below. We historically have engaged in
interest rate hedging activities related to our floating rate debt. We entered into an interest rate swap during December 2005 on a portion of our Notes, which did not originally qualify for hedge accounting under SFAS No. 133. As a result, the
fair market value of the interest rate swap was marked to market during the quarter ended April 1, 2006, with a corresponding adjustment to other expense. The interest rate swap subsequently qualified for hedge accounting by the end of the
first quarter of Fiscal 2006. The fair market value of $1.3 million as of June 30, 2007, is recorded in other assets on the condensed consolidated balance sheet. Of the increase in market value of $0.7 million during Fiscal 2007, $0.4 million
is recorded in accumulated other comprehensive income, and $0.3 million is recorded as a deferred tax liability.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure and Procedures

The Companys management carried out an evaluation, under the
supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the design and operation of the Companys
disclosure controls and procedures (as such term is defined in Rules l3a (e) and l5d - 15(e) under the Securities Exchange Act of 1934 (the Exchange Act) as of June 30, 2007, pursuant to Exchange Act Rule 13a-l5. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as of June 30, 2007 are effective for (1) gathering, analyzing and disclosing the
information the Company is required to disclose in the reports it files under the Exchange Act, within the time periods specified in the Securities and Exchange Commissions rules and forms, and (2) accumulated and communicated to the
Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our
internal control structure, policies and procedures for the quarter ended June 30, 2007 that could significantly affect our internal control over financial reporting, or be reasonably likely to materially affect our internal control over
financial reporting.



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PART II.

OTHER INFORMATION



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

The
information set forth in Note 8 in the Notes to Condensed Consolidated Financial Statements included herein is hereby incorporated by reference.



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

For a more
detailed explanation of the factors affecting our business, please refer to the Risk Factors section in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2007. There have been no material changes
from risk factors previously disclosed in our Form 10-K.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------



|            |  |                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                      
|31.1        |  | Certification of Thomas A. Tolworthy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|            | 
|31.2        |  | Certification of Michael G. Archbold pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|            | 
|32.1        |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief Executive Officer.
|            | 
|32.2        |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief Financial Officer.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 14, 2007.



VS HOLDINGS, INC.By:

/s/ Thomas A. TolworthyThomas A. TolworthyChief Executive OfficerBy

/s/ Michael G. ArchboldMichael G. ArchboldChief Financial Officer




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CERTIFICATIONS



|            |  |                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                      
|31.1        |  | Certification of Thomas A. Tolworthy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|            | 
|31.2        |  | Certification of Michael G. Archbold pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|            | 
|32.1        |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief Executive Officer.
|            | 
|32.2        |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief Financial Officer.



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