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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2008

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, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                                                      |  |                             
|-------------------------- |  | -------------------- |  | -------------------------------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer  x (Do not check if smaller reporting company) |  | Smaller reporting company   ̈

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
November 10, 2008, VS Holdings, Inc. had 100 shares of common stock outstanding owned by VS Parent, Inc.









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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 28, 2008 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



|                      |  |                                                                                                                                            |  |         
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | --------
|                      |  |                                                                                                                                            |  | Page No.
|                      |  | PART I FINANCIAL INFORMATION                                                                                                               |  |         
|Item 1.               |  | Financial Statements                                                                                                                       |  |         
|                      |  | Condensed Consolidated Balance Sheets as of September 27, 2008 and December 29, 2007 (unaudited)                                           |  | 4       
|                      |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2008 and September 29,
 2007 (unaudited) |  | 5       
|                      |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2008 and September 29, 2007 (unaudited)            |  | 6       
|                      |  | Condensed Consolidated Statement of Stockholders Equity for the nine months ended September 27, 2008
(unaudited)                          |  | 7       
|                      |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                           |  | 8       
|Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                      |  | 23      
|Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                 |  | 36      
|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)



|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                      |  | September 27,2008 |         |   | December 29,2007 |  
|ASSETS                                                                                                                                |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                       |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                             |  | $                 | 1,647   |   |                  | $ | 1,453   |  
|Inventories                                                                                                                           |  |                   | 109,112 |   |                  |   | 97,809  |  
|Prepaid expenses and other current assets                                                                                             |  |                   | 11,473  |   |                  |   | 11,587  |  
|Deferred income taxes                                                                                                                 |  |                   | 4,111   |   |                  |   | 1,556   |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                  |  |                   | 126,343 |   |                  |   | 112,405 |  
|Property and equipment, net                                                                                                           |  |                   | 75,930  |   |                  |   | 63,270  |  
|Goodwill                                                                                                                              |  |                   | 177,248 |   |                  |   | 177,248 |  
|Other intangibles, net                                                                                                                |  |                   | 71,241  |   |                  |   | 68,223  |  
|Other assets:                                                                                                                         |  |                   |         |   |                  |   |         |  
|Deferred financing fees, net of accumulated amortization of $3,244 and $2,368 in 2008 and 2007, respectively                          |  |                   | 4,389   |   |                  |   | 5,265   |  
|Other long-term assets                                                                                                                |  |                   | 1,566   |   |                  |   | 319     |  
|Security deposits                                                                                                                     |  |                   | 456     |   |                  |   | 1,553   |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total other assets                                                                                                                    |  |                   | 6,411   |   |                  |   | 7,137   |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                          |  | $                 | 457,173 |   |                  | $ | 428,283 |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                  |  |                   |         |   |                  |   |         |  
|Current portion of capital lease obligation                                                                                           |  | $                 | 1,175   |   |                  | $ |        |  
|Revolving credit facility                                                                                                             |  |                   | 17,000  |   |                  |   |        |  
|Accounts payable                                                                                                                      |  |                   | 26,322  |   |                  |   | 35,349  |  
|Deferred sales                                                                                                                        |  |                   | 10,074  |   |                  |   | 11,212  |  
|Accrued salaries and related expenses                                                                                                 |  |                   | 4,937   |   |                  |   | 4,850   |  
|Accrued interest                                                                                                                      |  |                   | 2,391   |   |                  |   | 2,551   |  
|Other accrued expenses                                                                                                                |  |                   | 12,443  |   |                  |   | 7,216   |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                             |  |                   | 74,342  |   |                  |   | 61,178  |  
|Long-term debt                                                                                                                        |  |                   | 165,000 |   |                  |   | 165,000 |  
|Capital lease obligation, net of current portion                                                                                      |  |                   | 3,416   |   |                  |   |        |  
|Deferred income taxes                                                                                                                 |  |                   | 21,287  |   |                  |   | 20,282  |  
|Other long-term liabilities                                                                                                           |  |                   | 5,377   |   |                  |   | 5,057   |  
|Deferred rent                                                                                                                         |  |                   | 19,349  |   |                  |   | 16,972  |  
|Commitments and contingencies                                                                                                         |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                 |  |                   |         |   |                  |   |         |  
|Common stock, $0.01 par value; 1,000 shares authorized, 100 shares issued and outstanding at September 27, 2008 and December 29,
2007 |  |                   |        |   |                  |   |        |  
|Additional paid-in capital                                                                                                            |  |                   | 158,932 |   |                  |   | 157,204 |  
|Accumulated other comprehensive loss                                                                                                  |  |                   | (1,479  | ) |                  |   | (1,350  | )
|Retained earnings                                                                                                                     |  |                   | 10,949  |   |                  |   | 3,940   |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                            |  |                   | 168,402 |   |                  |   | 159,794 |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                            |  | $                 | 457,173 |   |                  | $ | 428,283 |  
|                                                                                                                                      |  |                   |         |   |                  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)



|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                             |  | Three Months Ended |         |   | Nine Months Ended |  
|                                             |  | September 27,2008  |         |   | September 29,2007 |   |         | September 27,2008 |  |   | September 29,2007 |  
|Net sales                                    |  | $                  | 151,318 |   |                   | $ | 135,126 |                   |  | $ | 458,409           |   |  | $ | 406,092 |  
|Cost of goods sold                           |  |                    | 101,634 |   |                   |   | 90,853  |                   |  |   | 308,425           |   |  |   | 271,589 |  
|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Gross profit                                 |  |                    | 49,684  |   |                   |   | 44,273  |                   |  |   | 149,984           |   |  |   | 134,503 |  
|Selling, general and administrative expenses |  |                    | 40,387  |   |                   |   | 36,367  |                   |  |   | 119,980           |   |  |   | 108,390 |  
|Related party expenses                       |  |                    | 397     |   |                   |   | 346     |                   |  |   | 1,132             |   |  |   | 1,015   |  
|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Income from operations                       |  |                    | 8,900   |   |                   |   | 7,560   |                   |  |   | 28,872            |   |  |   | 25,098  |  
|Interest income                              |  |                    | (27     | ) |                   |   | (59     | )                 |  |   | (49               | ) |  |   | (162    | )
|Interest expense                             |  |                    | 5,279   |   |                   |   | 5,605   |                   |  |   | 16,068            |   |  |   | 16,752  |  
|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Income before provision for income taxes     |  |                    | 3,648   |   |                   |   | 2,014   |                   |  |   | 12,853            |   |  |   | 8,508   |  
|Provision for income taxes                   |  |                    | 1,693   |   |                   |   | 733     |                   |  |   | 5,282             |   |  |   | 3,066   |  
|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Net income                                   |  | $                  | 1,955   |   |                   | $ | 1,281   |                   |  | $ | 7,571             |   |  | $ | 5,442   |  
|                                             |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                  |  | Nine Months Ended |        
|                                                                                  |  | September 27,2008 |         |   | September 29,2007 |  
|Cash flows from operating activities:                                             |  |                   |         |   |                   |   |         |  
|Net income                                                                        |  | $                 | 7,571   |   |                   | $ | 5,442   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |         |   |                   |   |         |  
|Loss on disposal of fixed assets                                                  |  |                   | 51      |   |                   |   | 71      |  
|Depreciation and amortization                                                     |  |                   | 13,471  |   |                   |   | 11,835  |  
|Deferred income taxes                                                             |  |                   | (1,468  | ) |                   |   | 2,678   |  
|Deferred rent                                                                     |  |                   | 2,269   |   |                   |   | 1,416   |  
|Equity compensation expense                                                       |  |                   | 1,728   |   |                   |   | 1,058   |  
|Changes in operating assets and liabilities:                                      |  |                   |         |   |                   |   |         |  
|Inventories                                                                       |  |                   | (11,303 | ) |                   |   | (10,683 | )
|Prepaid expenses and other current assets                                         |  |                   | 222     |   |                   |   | 394     |  
|Other non-current assets                                                          |  |                   | (150    | ) |                   |   | 14      |  
|Accounts payable                                                                  |  |                   | (6,800  | ) |                   |   | (1,817  | )
|Accrued expenses and other current liabilities                                    |  |                   | 4,016   |   |                   |   | 318     |  
|Other long-term liabilities                                                       |  |                   | 109     |   |                   |   | 27      |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash provided by operating activities                                         |  |                   | 9,716   |   |                   |   | 10,753  |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Cash flows from investing activities:                                             |  |                   |         |   |                   |   |         |  
|Capital expenditures                                                              |  |                   | (22,406 | ) |                   |   | (10,090 | )
|Intangible assets acquired in asset purchases                                     |  |                   | (3,454  | ) |                   |   |        |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash used in investing activities                                             |  |                   | (25,860 | ) |                   |   | (10,090 | )
|                                                                                  |  |                   |         |   |                   |   |         |  
|Cash flows from financing activities:                                             |  |                   |         |   |                   |   |         |  
|Borrowings under revolving credit agreement                                       |  |                   | 20,000  |   |                   |   | 4,000   |  
|Repayments of borrowing under revolving credit agreement                          |  |                   | (3,000  | ) |                   |   | (4,000  | )
|Dividend to Parent                                                                |  |                   | (562    | ) |                   |   |        |  
|Deferred financing fees                                                           |  |                   |        |   |                   |   | (20     | )
|Payments of capital lease obligation                                              |  |                   | (100    | ) |                   |   |        |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) financing activities                               |  |                   | 16,338  |   |                   |   | (20     | )
|                                                                                  |  |                   |         |   |                   |   |         |  
|Net increase in cash and cash equivalents                                         |  |                   | 194     |   |                   |   | 643     |  
|Cash and cash equivalents beginning of period                                     |  |                   | 1,453   |   |                   |   | 1,472   |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents end of period                                           |  | $                 | 1,647   |   |                   | $ | 2,115   |  
|                                                                                  |  |                   |         |   |                   |   |         |  
|Supplemental disclosures of cash flow information:                                |  |                   |         |   |                   |   |         |  
|Interest paid                                                                     |  | $                 | 15,291  |   |                   | $ | 16,353  |  
|Income taxes paid                                                                 |  | $                 | 5,499   |   |                   | $ | 244     |  
|Supplemental disclosures of non-cash investing activities:                        |  |                   |         |   |                   |   |         |  
|Accrued purchases of property and equipment                                       |  | $                 |        |   |                   | $ | 124     |  
|Assets acquired under capital lease                                               |  | $                 | 4,691   |   |                   | $ |        |  

See accompanying notes to condensed consolidated financial statements.



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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 |   | AccumulatedOtherComprehensiveLoss |   |         | RetainedEarnings |   |        | Total | 
|                                          |  | Shares       |  | Amounts                   |   |                                   |   |        
|Balance at December 29, 2007              |  | 100          |  | $                         |  |                                   | $ | 157,204 |                  | $ | (1,350 | )     |  | $ | 3,940  |   |  | $ | 159,794 |  
|                                          |  |              |  |                           |   |                                   |   |         |                  |   |        |       |  |   |        |   |  |   |         |  
|Net income                                |  |             |  |                           |  |                                   |   |        |                  |   |       |       |  |   | 7,571  |   |  |   | 7,571   |  
|Interest Rate Swap, net of taxes of $(82) |  |             |  |                           |  |                                   |   |        |                  |   | (129   | )     |  |   |       |   |  |   | (129    | )
|                                          |  |              |  |                           |   |                                   |   |         |                  |   |        |       |  |   |        |   |  |   |         |  
|Total Comprehensive Income                |  |              |  |                           |   |                                   |   |         |                  |   |        |       |  |   |        |   |  |   | 7,442   |  
|Dividend to Parent                        |  |             |  |                           |  |                                   |   |        |                  |   |       |       |  |   | (562   | ) |  |   | (562    | )
|Equity Compensation Expense               |  |             |  |                           |  |                                   |   | 1,728   |                  |   |       |       |  |   |       |   |  |   | 1,728   |  
|                                          |  |              |  |                           |   |                                   |   |         |                  |   |        |       |  |   |        |   |  |   |         |  
|Balance at September 27, 2008             |  | 100          |  | $                         |  |                                   | $ | 158,932 |                  | $ | (1,479 | )     |  | $ | 10,949 |   |  | $ | 168,402 |  
|                                          |  |              |  |                           |   |                                   |   |         |                  |   |        |       |  |   |        |   |  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

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, the Internet and mail order catalogs 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 September 27, 2008 and for the three and nine months ended September 27, 2008 and September 29, 2007, include the accounts of Holdings, VSI and Direct. All significant intercompany transactions
have been eliminated. The condensed consolidated financial statements as of September 27, 2008 and for the three and nine months ended September 27, 2008 and September 29, 2007, 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 for
the year ended December 29, 2007. 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
2008 is a 52-week period ending December 27, 2008 and Fiscal 2007 was a 52-week period ended December 29, 2007. The results for the three and nine months ended September 27, 2008 and September 29, 2007, are each based on a
13-week and 39-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), which qualifies for hedge accounting under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities. The interest rate swap has a maturity date of November 2010. The swaps fair market value of $2.3 million at December 29, 2007, and $2.6 million at September 27, 2008, is recorded in other long-term
liabilities on the condensed consolidated balance sheets. Of the decrease in market value of $0.3 million during Fiscal 2008, $0.2 million was charged to accumulated other comprehensive loss, and $0.1 million to the deferred income tax asset.



8



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Advertising CostsCosts associated with the production and distribution of the Companys
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 $3.2 million and $10.3 million for the three
months and nine months ended September 27, 2008, and $3.0 million and $11.2 million for the three months and nine months ended September 29, 2007, respectively.

Recent Accounting PronouncementsIn March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133, (SFAS No. 161). SFAS No. 161 will require entities to provide enhanced disclosures for derivative activities and hedging activities with regard to the reasons
for employing derivative instruments, how they are accounted for, and how these instruments affect an entitys financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for fiscal years
beginning after November 15, 2008. The adoption of SFAS No. 161 will not have a material impact on the Companys financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an
Amendment of FASB Statement No.115, (SFAS No. 159). SFAS No. 159 permits entities to choose to measure and report selected financial assets and liabilities at fair value on an instrument-by-instrument basis, 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. The provisions of SFAS No. 159 were effective in
the first quarter of fiscal year 2008. The adoption of SFAS No. 159 did not have a material impact on the Companys financial condition, results of operations or cash flows.

Effective December 30, 2007, the Company adopted certain provisions of SFAS No. 157, Fair Value Measurements, that apply to certain
financial assets and liabilities. 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. SFAS No. 157, as amended by FASB Staff Position 157-2, Effective Date of FASB Statement No. 157
(FSP 157-2), requires that the remaining provisions, which apply to nonfinancial assets and nonfinancial liabilities, be made effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years. The Company does not expect the adoption of the remaining provisions of SFAS No. 157 and FSP 157-2 to have a material impact on its financial condition, results of operations or cash flows. Required
disclosures are included in Note 11 to the Companys condensed consolidated financial statements.

In December 2007, the FASB issued
SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), SFAS No. 141(R) attempts to improve the relevance and comparability of the information included in companies financial reports regarding business
combinations and their effects. The statement is effective for acquisitions occurring in fiscal years beginning on or after December 15, 2008, as well as for certain adjustments to income tax items relating to acquisitions completed prior to
the adoption date. Currently, the Company cannot determine the impact, if any, the adoption will have on its financial condition, results of operations or cash flows.



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

The Company
acquired $88.0 million of intangible assets and $175.9 million of goodwill in an acquisition completed in Fiscal 2002. The Company also acquired $3.0 million of intangible assets related to an asset purchase in the first quarter of Fiscal 2008,
comprised primarily of operating leases, and $0.5 million of intangible assets related to an asset purchase completed in the second quarter of Fiscal 2008, which was primarily attributable to the acquisition of a tradename. Other intangible assets
relating to the asset purchases which occurred in the first and second quarters of Fiscal 2008 include customer lists and non-compete agreements.



9



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



|                                      |  |                     |         |                         |   |     |  |                     |         |                         |   |         |  |   |   |  |   |        
|------------------------------------- |  | ------------------- | ------- | ----------------------- | - | --- |  | ------------------- | ------- | ----------------------- | - | ------- |  | - | - |  | - | -------
|                                      |  | September 27, 2008  |         | December 29, 2007      
|                                      |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net    
|Intangible assets:                    |  |                     |         |                         |   |     |  |                     |         |                         |   |         |  |   |   |  |   |        
|Intangibles related to asset purchase |  | $                   | 2,991   |                         | $ | 427 |  | $                   | 2,564   |                         | $ |        |  | $ |  |  | $ |       
|Tradenames                            |  |                     | 68,677  |                         |   |    |  |                     | 68,677  |                         |   | 68,223  |  |   |  |  |   | 68,223 
|Goodwill                              |  |                     | 177,248 |                         |   |    |  |                     | 177,248 |                         |   | 177,248 |  |   |  |  |   | 177,248
|                                      |  |                     |         |                         |   |     |  |                     |         |                         |   |         |  |   |   |  |   |        
|                                      |  | $                   | 248,916 |                         | $ | 427 |  | $                   | 248,489 |                         | $ | 245,471 |  | $ |  |  | $ | 245,471
|                                      |  |                     |         |                         |   |     |  |                     |         |                         |   |         |  |   |   |  |   |        

Intangible amortization expense for the three and nine months ended September 27, 2008, was
$0.2 million and $0.4 million, respectively. There was no amortization expense in Fiscal 2007. Tradenames are not amortized, as they are determined to be intangible assets with indefinite lives. Tradenames and goodwill will be tested for impairment
in the last quarter of Fiscal 2008 or whenever impairment indicators exist.



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

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



|                                                |  |                   |         |   |                  |   |         |  
|----------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | September 27,2008 |         |   | December 29,2007 |  
|Furniture, fixtures and equipment               |  | $                 | 81,602  |   |                  | $ | 69,784  |  
|Leasehold improvements                          |  |                   | 77,335  |   |                  |   | 68,278  |  
|Website development costs                       |  |                   | 11,194  |   |                  |   | 11,180  |  
|Transportation equipment                        |  |                   | 21      |   |                  |   | 21      |  
|Construction in progress                        |  |                   | 4,610   |   |                  |   | 1,937   |  
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  |                   | 174,762 |   |                  |   | 151,200 |  
|Less: accumulated depreciation and amortization |  |                   | (98,832 | ) |                  |   | (87,930 | )
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  | $                 | 75,930  |   |                  | $ | 63,270  |  
|                                                |  |                   |         |   |                  |   |         |  

Depreciation and amortization expense on property and equipment, including equipment recorded
under capital leases, for the three and nine months ended September 27, 2008 was $4.2 million and $12.2 million, respectively, and for the three and nine months ended September 29, 2007 was $3.7 million and $11.0 million, respectively. The
Company had equipment related to capital leases of $4.7 million at September 27, 2008 with accumulated depreciation of $0.2 million. Depreciation and amortization expense on property and equipment is recorded in selling, general and
administrative expenses on the condensed consolidated statements of operations.



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

Debt consists of the following
(in thousands):



|                                                                 |  |                   |         |                  |   |        
|---------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                 |  | September 27,2008 |         | December 29,2007
|Revolving Credit Facility                                        |  | $                 | 17,000  |                  | $ |       
|                                                                 |  |                   |         |                  |   |        
|Second Priority Senior Secured Floating Rate Notes (the Notes) |  | $                 | 165,000 |                  | $ | 165,000
|                                                                 |  |                   |         |                  |   |        

Second Priority Senior Secured Floating Rate Notes

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 29, 2007
through September 27, 2008 was 10.69% (11.95%



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after including the impact of hedging activities). 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 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 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. As of November 15, 2007, VSI has been allowed, at its option, to redeem some or all of the Notes.

Revolving Credit Facility

On November 15, 2005, VSI entered into a $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 September 27, 2008 was $31.3 million and the amount of borrowings outstanding at September 27, 2008 was $17.0 million. The largest amount borrowed at any given point during the
three and nine months ended September 27, 2008 was $17.0 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
September 27, 2008.

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 30, 2007 through September 27, 2008 was 4.10%.

Interest expense for the three and nine months ended
September 27, 2008 and September 29, 2007 consists of the following (in thousands):



|                                                    |  |                    |       |                   |   |               |  |               |        |  |   |       
|--------------------------------------------------- |  | ------------------ | ----- | ----------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                                    |  | Three Months Ended |       | Nine Months Ended
|                                                    |  | September 27,      |       | September 29,     |   | September 27, |  | September 29,
|                                                    |  | 2008               |       | 2007              |   | 2008          |  | 2007         
|Interest on the Notes                               |  | $                  | 4,829 |                   | $ | 5,080         |  |               | 14,735 |  | $ | 15,346
|Amortization of deferred financing fees             |  |                    | 292   |                   |   | 290           |  |               | 876    |  |   | 870   
|Interest on the revolving credit facility and other |  |                    | 158   |                   |   | 235           |  |               | 457    |  |   | 536   
|                                                    |  |                    |       |                   |   |               |  |               |        |  |   |       
|                                                    |  | $                  | 5,279 |                   | $ | 5,605         |  | $             | 16,068 |  | $ | 16,752
|                                                    |  |                    |       |                   |   |               |  |               |        |  |   |       



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##### Table of Contents

Capital Leases

The Company leases computer equipment under two capital leases, one which commenced in January 2008, that expires in 2011, and another which commenced in September 2008, that expires in 2012. The following is a
schedule of the future minimum lease payments under capital leases as of September 27, 2008 (in thousands):



|                                                 |  |   |      
|------------------------------------------------ |  | - | -----
|Remainder of Fiscal 2008                         |  | $ | 434  
|Fiscal 2009                                      |  |   | 1,341
|Fiscal 2010                                      |  |   | 1,341
|Fiscal 2011                                      |  |   | 1,341
|Fiscal 2012                                      |  |   | 794  
|                                                 |  |   |      
|Total                                            |  |   | 5,251
|Less amount representing interest                |  |   | 660  
|                                                 |  |   |      
|Present value minimum lease payments             |  |   | 4,591
|Less current portion of capital lease obligation |  |   | 1,175
|                                                 |  |   |      
|                                                 |  | $ | 3,416
|                                                 |  |   |      



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

Stock Option
PlanIn Fiscal 2002 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 2006 Plan as of September 27, 2008 and
changes during the nine month period then ended:



|                                                 |  |                  |   |  |                              |       |                                                 |     
|------------------------------------------------ |  | ---------------- | - |  | ---------------------------- | ----- | ----------------------------------------------- | ----
|                                                 |  | Number ofOptions |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife (years)
|Outstanding at December 29, 2007                 |  | 1,883,882        |   |  | $                            | 19.53 |                                                 |     
|Granted                                          |  | 93,788           |   |  | $                            | 28.52 |                                                 |     
|Canceled/forfeited                               |  | (45,312          | ) |  | $                            | 19.25 |                                                 |     
|                                                 |  |                  |   |  |                              |       |                                                 |     
|Outstanding at September 27, 2008                |  | 1,932,358        |   |  | $                            | 19.97 |                                                 | 6.61
|                                                 |  |                  |   |  |                              |       |                                                 |     
|Vested or expected to vest at September 27, 2008 |  | 1,835,740        |   |  | $                            | 19.97 |                                                 | 6.61
|                                                 |  |                  |   |  |                              |       |                                                 |     
|Vested and exercisable at September 27, 2008     |  | 1,206,519        |   |  | $                            | 18.31 |                                                 | 5.60
|                                                 |  |                  |   |  |                              |       |                                                 |     

The Company accounts for its stock-based compensation based on the requirements of SFAS
No. 123(R) Share-Based Payment, (SFAS 123(R)). This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25). SFAS 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 awards
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. For those grants valued under SFAS 123(R),
compensation expense attributable to stock-based compensation for the three and nine months ended September 27, 2008, was approximately $0.6 million and $1.7 million, respectively, and for the three and nine months ended September 29,
2007, was approximately $0.5 million and $1.1 million respectively. As of September 27, 2008, 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 $5.8 million, and the related weighted-average period over which it is expected to be recognized is approximately 2.6 years. There were 1,206,519 and 725,839 vested and non-vested options, respectively, at September 27,
2008. 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. Currently, the Company estimates forfeitures based on its
historical forfeiture rate since the plan inception in Fiscal 2002. The value pertaining to estimated future forfeitures as of September 27, 2008 are approximately $0.3 million.



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The weighted-average grant date fair value of stock options granted during the three and nine months
ended September 27, 2008 were $15.54 and $14.02, respectively, and for the three and nine months ended September 29, 2007 were $13.32 and $13.03, respectively. There were no stock options exercised during the first nine months of Fiscal
2008 or 2007. 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 |   |  | Nine Months Ended |  
|                        |  | September 27,2008  |   |  | September 29,2007 |   |  | September 27,2008 |   |  | September 29,2007 |  
|Expected dividend yield |  | 0.0                | % |  | 0.0               | % |  | 0.0               | % |  | 0.0               | %
|Expected volatility     |  | 46.6               | % |  | 49.2              | % |  | 46.7              | % |  | 52.3              | %
|Risk-free interest rate |  | 3.29               | % |  | 4.26              | % |  | 3.30              | % |  | 4.62              | %
|Expected holding period |  | 6.25 years         |   |  | 6.25 years        |   |  | 6.25 years        |   |  | 6.25 years        |  

The expected volatility applicable to the three and nine months ended September 27, 2008 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. The simplified method was chosen as a means to determine the Companys holding period as
there is no historical option exercise experience due to the Company being privately held.



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

Dwight Thompson v. The
Vitamin Shoppe. 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. On February 25, 2005, plaintiff Dwight Thompson
(Thompson), a former store manager, filed suit on behalf of himself and other similarly situated current and former California store managers and assistant store managers in the Superior Court of the State of California for
the County of Orange (Orange County Superior Court), alleging causes of action for (1) failure to pay overtime wages; (2) unfair business practices under Cal. Bus. & Prof. Code §§ 17000 et seq.;
(3) conversion; (4) failure to provide rest and meal periods; and (5) unfair competition under Cal. Bus. & Prof. Code § 17200 et seq. (UCL) (the Thompson Action). On September 2, 2005,
Thompson amended his complaint to include a representative claim for civil penalties under the Labor Code Private Attorneys General Act, Cal. Labor Code §§ 2698 et seq. (PAGA), also known as the California bounty
hunter statute, which may permit Thompson to collect civil penalties on behalf of all other allegedly aggrieved employees for violations of the Labor Code and attorneys fees if he prevails. Almost one year later, on July 7, 2006,
the same group of plaintiffs attorneys who were representing Thompson filed another wage and hour lawsuit against The Vitamin Shoppe based on substantively identical allegations in the Orange County Superior Court, entitled Estel v. The
Vitamin Shoppe Industries Inc. (Case No. 06CC07852) (the Estel Action). Plaintiffs in the Estel Action were nine individuals  all of whom were already class members in the Thompson Action and in the lawsuit described below,
Janine Perry and Thomas Vitrano v. Vitamin Shoppe Industries Inc. (the Perry Action). The parties engaged in some preliminary pre-trial discovery, until the Court stayed the Thompson and Estel Actions pending court approval of the
settlement in the Perry Action described below. In December 2007, the Court lifted the stay of the Thompson and Estel Actions and in January 2008, the Court consolidated the Thompson and Estel actions. In the consolidated complaint, Plaintiffs
assert nine claims for relief against the Company: (1) failure to pay overtime wages; (2) unfair business practices in violation of Cal. Bus. & Prof. Code §§ 17000 et seq.; (3) conversion; (4) failure to
provide meal periods; (5) failure to provide rest periods; (6) unfair competition under the UCL; (7) failure to provide itemized wage statements; (8) failure to provide wages and accrued vacation upon termination; and
(9) recovery of civil penalties under PAGA. Plaintiffs purport to bring their UCL and PAGA claims as representative actions and the remaining claims on behalf of a class composed of all current and former assistant managers and managers of the
Company who were employed on or after April 14, 2006 (the Amended Thompson Action). The Company intends to defend the Amended Thompson Action vigorously. At this time it is premature to address any potential loss as a result of
these claims, or the amount or range of potential loss. Accordingly, as of September 27, 2008, the Company has not accrued any liabilities related to this litigation.

Janine Perry and Thomas Vitrano v. Vitamin Shoppe Industries Inc.On August 17, 2005, plaintiff Perry, a former assistant store manager,
later joined by 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 matter 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 final approval of the Marin County Superior Court. There has been an



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interlocutory appeal filed by the plaintiffs counsel in the Thompson action, as well as an appeal of the Courts approval of the settlement, both
of which are still pending. 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. Accordingly, as of September 27, 2008, the Company has not accrued any further liabilities related to this litigation.

California District Attorneys 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 met with
the California Attorney General and certain District Attorneys, 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 Company has withdrawn certain of the other named products from the California market and has provided warnings with respect to the others pending discussions with the public prosecutors. At this time it is
premature to address any potential loss as a result of these claims, or the amount or range of potential loss. As of September 27, 2008, 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, many of which are covered by insurance. Except as
described above, as of the third Fiscal quarter ended September 27, 2008, 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,
results of operations or cash flows 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, results of operations or
liquidity of the Company.



|9. | Related Party Transactions
|-- | --------------------------

In connection with the
acquisition completed in Fiscal 2002, the Company entered into a management agreement with IPC Manager II, LLC (formerly 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 nine months ended September 27, 2008 were approximately $0.4 million and $1.1 million, respectively, and for the three and nine
months ended September 29, 2007 were approximately $0.3 million and $1.0 million, respectively.

In July 2008, the Company paid a
dividend to VS Parent, Inc., its parent company, of approximately $562,000. This dividend was used for the redemption of 358 of VS Parent, Inc.s preferred shares, including the associated preferred dividends in arrears, held by the
Companys chief executive officer.



|10. | 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 table below
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 Web site and catalog. A catalog is mailed periodically to
customers in the Companys Frequent Buyer Program database, and the Companys websites at www.vitaminshoppe.com and www.BodyTech.comoffer 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, information technology, 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 3- Summary of Significant Accounting Policies in the Fiscal 2007 consolidated financial statements. The Company has allocated $131.9
million and $45.3 million of its recorded goodwill to the retail and direct segments, respectively. The Company does not have identifiable assets separated by segment.



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##### Table of Contents

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



|                        |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|----------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                        |  | Three Months Ended |         |   | Nine Months Ended |  
|                        |  | September 27,2008  |         |   | September 29,2007 |   |         | September 27,2008 |  |   | September 29,2007 |  
|Sales:                  |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Retail                  |  | $                  | 131,755 |   |                   | $ | 116,489 |                   |  | $ | 398,359           |   |  | $ | 348,903 |  
|Direct                  |  |                    | 19,563  |   |                   |   | 18,637  |                   |  |   | 60,050            |   |  |   | 57,189  |  
|                        |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Net sales               |  |                    | 151,318 |   |                   |   | 135,126 |                   |  |   | 458,409           |   |  |   | 406,092 |  
|Income from operations: |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Retail                  |  |                    | 20,487  |   |                   |   | 18,162  |                   |  |   | 62,490            |   |  |   | 54,186  |  
|Direct                  |  |                    | 3,599   |   |                   |   | 3,304   |                   |  |   | 11,319            |   |  |   | 10,516  |  
|Corporate costs         |  |                    | (15,186 | ) |                   |   | (13,906 | )                 |  |   | (44,937           | ) |  |   | (39,604 | )
|                        |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Income from operations  |  | $                  | 8,900   |   |                   | $ | 7,560   |                   |  | $ | 28,872            |   |  | $ | 25,098  |  
|                        |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  



|11. | Fair Value Financial Instruments
|--- | --------------------------------

Effective
December 30, 2007, the Company adopted the provisions of SFAS No. 157 that applies to its financial assets and liabilities which are measured at fair value within the condensed consolidated financial statements. SFAS No. 157
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are
inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs based on a companys own assumptions about market participant
assumptions developed based on the best information available in the circumstances. In determining the fair value of the Companys interest rate swap, observable inputs were available at September 27, 2008, and thus were relied upon for
the interest rate swaps valuation. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1  Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.

Level 2  Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for

the asset or liability, either directly or indirectly through corroboration with observable market data. Assets and liabilities utilizing Level 2 inputs
include fair value and cash flow swap instruments.

Level 3  Valuations based on inputs that are unobservable and significant to the
overall fair value measurement.

The Companys interest rate swap was established as a cash flow hedge on a portion of its Notes to
offset fluctuations related to the variable rate interest payments as described in Note 6. The interest rate swap is included in other long-term liabilities in the condensed consolidated balance sheets. The swap is categorized in level 2 in the fair
value hierarchy as shown in the following table:



|                   |  |       |     |                                                            |   |                                             |  |                                        |     |  |   |  
|------------------ |  | ----- | --- | ---------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | --- |  | - | -
|                   |  |       |     | Fair value at September 27, 2008, using:                  
|(In millions)      |  | Total |     | Quoted pricesin activemarkets foridentical assets(Level 1) |   | Significant otherobservable inputs(Level 2) |  | Significantunobservableinputs(Level 3)
|Interest rate swap |  | $     | 2.6 |                                                            | $ |                                            |  | $                                      | 2.6 |  | $ | 
|                   |  |       |     |                                                            |   |                                             |  |                                        |     |  |   |  
|Total              |  | $     | 2.6 |                                                            | $ |                                            |  | $                                      | 2.6 |  | $ | 
|                   |  |       |     |                                                            |   |                                             |  |                                        |     |  |   |  



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|12. | Subsequent Event
|--- | ----------------

On November 1, 2008, Bear
Stearns Merchant Banking, commonly known as BSMB, which was affiliated with Bear Stearns & Co., Inc., spun out into an independent firm and changed its name to Irving Place Capital. As a result, Bear Stearns Merchant Manager II
, LLC and Bear Stearns Merchant Banking Partners II, L.P., underwent a name change to IPC Manager II, LLC and Irving Place Capital Partners II, L.P., respectively.



|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.



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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:

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 27, 2008

(In thousands, except share data)



|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | --------------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                                                          |  | VS Holdings,Inc. |         |   | VS DirectInc. |   | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |         
|ASSETS                                                                                    |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Current assets:                                                                           |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Cash and cash equivalents                                                                 |  | $                |        |   |               | $ | 894                         |  | $ | 753          |   |  | $            |         |   |  | $ | 1,647   |  
|Inventories                                                                               |  |                  |        |   |               |   | 17,528                      |  |   | 91,584       |   |  |              |         |   |  |   | 109,112 |  
|Prepaid expenses and other current assets                                                 |  |                  |        |   |               |   | 125                         |  |   | 11,348       |   |  |              |         |   |  |   | 11,473  |  
|Intercompany receivable                                                                   |  |                  |        |   |               |   | 306,871                     |  |   | 305,912      |   |  |              | (612,783 | ) |  |   |        |  
|Deferred income taxes                                                                     |  |                  |        |   |               |   | 585                         |  |   | 3,526        |   |  |              |         |   |  |   | 4,111   |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total current assets                                                                      |  |                  |        |   |               |   | 326,003                     |  |   | 413,123      |   |  |              | (612,783 | ) |  |   | 126,343 |  
|Property and equipment, net                                                               |  |                  |        |   |               |   | 18,612                      |  |   | 57,318       |   |  |              |         |   |  |   | 75,930  |  
|Goodwill                                                                                  |  |                  |        |   |               |   |                            |  |   | 177,248      |   |  |              |         |   |  |   | 177,248 |  
|Other intangibles, net                                                                    |  |                  |        |   |               |   |                            |  |   | 71,241       |   |  |              |         |   |  |   | 71,241  |  
|Other assets:                                                                             |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Deferred financing fees, net of accumulated amortization of $3,244                        |  |                  |        |   |               |   |                            |  |   | 4,389        |   |  |              |         |   |  |   | 4,389   |  
|Other long-term assets                                                                    |  |                  |        |   |               |   |                            |  |   | 1,566        |   |  |              |         |   |  |   | 1,566   |  
|Security deposits                                                                         |  |                  |        |   |               |   |                            |  |   | 456          |   |  |              |         |   |  |   | 456     |  
|Deferred income tax asset                                                                 |  |                  | 1,870   |   |               |   | 1,465                       |  |   | 11,896       |   |  |              | (15,231  | ) |  |   |        |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total other assets                                                                        |  |                  | 1,870   |   |               |   | 1,465                       |  |   | 18,307       |   |  |              | (15,231  | ) |  |   | 6,411   |  
|Investment in Subsidiary                                                                  |  |                  | 184,144 |   |               |   |                            |  |   | 45,547       |   |  |              | (229,691 | ) |  |   |        |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total assets                                                                              |  | $                | 186,014 |   |               | $ | 346,080                     |  | $ | 782,784      |   |  | $            | (857,705 | ) |  | $ | 457,173 |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Current liabilities:                                                                      |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Current portion of capital lease obligation                                               |  | $                |        |   |               | $ |                            |  | $ | 1,175        |   |  | $            |         |   |  | $ | 1,175   |  
|Revolving credit facility                                                                 |  |                  |        |   |               |   |                            |  |   | 17,000       |   |  |              |         |   |  |   | 17,000  |  
|Intercompany payable                                                                      |  |                  | 17,400  |   |               |   | 288,511                     |  |   | 306,872      |   |  |              | (612,783 | ) |  |   |        |  
|Accounts payable                                                                          |  |                  |        |   |               |   | 129                         |  |   | 26,193       |   |  |              |         |   |  |   | 26,322  |  
|Deferred sales                                                                            |  |                  |        |   |               |   | 1,981                       |  |   | 8,093        |   |  |              |         |   |  |   | 10,074  |  
|Accrued salaries and related expenses                                                     |  |                  |        |   |               |   |                            |  |   | 4,937        |   |  |              |         |   |  |   | 4,937   |  
|Accrued interest                                                                          |  |                  |        |   |               |   |                            |  |   | 2,391        |   |  |              |         |   |  |   | 2,391   |  
|Other accrued expenses                                                                    |  |                  | 25      |   |               |   | 5,098                       |  |   | 7,320        |   |  |              |         |   |  |   | 12,443  |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total current liabilities                                                                 |  |                  | 17,425  |   |               |   | 295,719                     |  |   | 373,981      |   |  |              | (612,783 | ) |  |   | 74,342  |  
|Long-term debt                                                                            |  |                  |        |   |               |   |                            |  |   | 165,000      |   |  |              |         |   |  |   | 165,000 |  
|Capital lease obligation, net of current portion                                          |  |                  |        |   |               |   |                            |  |   | 3,416        |   |  |              |         |   |  |   | 3,416   |  
|Deferred income taxes                                                                     |  |                  | 187     |   |               |   | 1,342                       |  |   | 34,989       |   |  |              | (15,231  | ) |  |   | 21,287  |  
|Other long-term liabilities                                                               |  |                  |        |   |               |   |                            |  |   | 5,377        |   |  |              |         |   |  |   | 5,377   |  
|Deferred rent                                                                             |  |                  |        |   |               |   | 3,472                       |  |   | 15,877       |   |  |              |         |   |  |   | 19,349  |  
|Commitments and contingencies                                                             |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Stockholders equity:                                                                     |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Common stock, $0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding |  |                  |        |   |               |   |                            |  |   |             |   |  |              |         |   |  |   |        |  
|Additional paid-in capital                                                                |  |                  | 158,932 |   |               |   | 20,165                      |  |   | 166,791      |   |  |              | (186,956 | ) |  |   | 158,932 |  
|Accumulated other comprehensive loss                                                      |  |                  | (1,479  | ) |               |   |                            |  |   | (1,479       | ) |  |              | 1,479    |   |  |   | (1,479  | )
|Retained earnings                                                                         |  |                  | 10,949  |   |               |   | 25,382                      |  |   | 18,832       |   |  |              | (44,214  | ) |  |   | 10,949  |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total stockholders equity                                                                |  |                  | 168,402 |   |               |   | 45,547                      |  |   | 184,144      |   |  |              | (229,691 | ) |  |   | 168,402 |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total liabilities and stockholders equity                                                |  | $                | 186,014 |   |               | $ | 346,080                     |  | $ | 782,784      |   |  | $            | (857,705 | ) |  | $ | 457,173 |  
|                                                                                          |  |                  |         |   |               |   |                             |  |   |              |   |  |              |          |   |  |   |         |  



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VS HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATING BALANCE SHEET AS OF DECEMBER 29, 2007

(In thousands, except
share data)



|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------- | - | --------------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                                                          |  | VS Holdings,Inc. |         |   | VS Direct |   | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |         
|ASSETS                                                                                    |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Current assets:                                                                           |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Cash and cash equivalents                                                                 |  | $                |        |   |           | $ | 567                         |  | $ | 886          |   |  | $            |         |   |  | $ | 1,453   |  
|Inventories                                                                               |  |                  |        |   |           |   | 16,251                      |  |   | 81,558       |   |  |              |         |   |  |   | 97,809  |  
|Prepaid expenses and other current assets                                                 |  |                  |        |   |           |   | 88                          |  |   | 11,499       |   |  |              |         |   |  |   | 11,587  |  
|Intercompany receivable                                                                   |  |                  |        |   |           |   | 230,336                     |  |   | 235,645      |   |  |              | (465,981 | ) |  |   |        |  
|Deferred income taxes                                                                     |  |                  |        |   |           |   | 388                         |  |   | 1,168        |   |  |              |         |   |  |   | 1,556   |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total current assets                                                                      |  |                  |        |   |           |   | 247,630                     |  |   | 330,756      |   |  |              | (465,981 | ) |  |   | 112,405 |  
|Property and equipment, net                                                               |  |                  |        |   |           |   | 14,985                      |  |   | 48,285       |   |  |              |         |   |  |   | 63,270  |  
|Goodwill                                                                                  |  |                  |        |   |           |   |                            |  |   | 177,248      |   |  |              |         |   |  |   | 177,248 |  
|Other intangibles, net                                                                    |  |                  |        |   |           |   |                            |  |   | 68,223       |   |  |              |         |   |  |   | 68,223  |  
|Other assets:                                                                             |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Deferred financing fees, net of accumulated amortization of $2,368                        |  |                  |        |   |           |   |                            |  |   | 5,265        |   |  |              |         |   |  |   | 5,265   |  
|Other long-term assets                                                                    |  |                  |        |   |           |   |                            |  |   | 319          |   |  |              |         |   |  |   | 319     |  
|Security deposits                                                                         |  |                  |        |   |           |   | 20                          |  |   | 1,533        |   |  |              |         |   |  |   | 1,553   |  
|Deferred income tax asset                                                                 |  |                  | 1,050   |   |           |   | 1,114                       |  |   | 12,041       |   |  |              | (14,205  | ) |  |   |        |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total other assets                                                                        |  |                  | 1,050   |   |           |   | 1,134                       |  |   | 19,158       |   |  |              | (14,205  | ) |  |   | 7,137   |  
|Investment in Subsidiary                                                                  |  |                  | 176,282 |   |           |   |                            |  |   | 38,705       |   |  |              | (214,988 | ) |  |   |        |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total assets                                                                              |  | $                | 177,332 |   |           | $ | 263,749                     |  | $ | 682,375      |   |  | $            | (695,174 | ) |  | $ | 428,283 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Current liabilities:                                                                      |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Revolving credit facility                                                                 |  | $                |        |   |           | $ |                            |  | $ |             |   |  | $            |         |   |  | $ |        |  
|Intercompany payable                                                                      |  |                  | 17,400  |   |           |   | 218,246                     |  |   | 230,335      |   |  |              | (465,981 | ) |  |   |        |  
|Accounts payable                                                                          |  |                  |        |   |           |   | 226                         |  |   | 35,123       |   |  |              |         |   |  |   | 35,349  |  
|Deferred sales                                                                            |  |                  |        |   |           |   | 1,951                       |  |   | 9,261        |   |  |              |         |   |  |   | 11,212  |  
|Accrued salaries and related expenses                                                     |  |                  |        |   |           |   |                            |  |   | 4,850        |   |  |              |         |   |  |   | 4,850   |  
|Accrued interest                                                                          |  |                  |        |   |           |   |                            |  |   | 2,551        |   |  |              |         |   |  |   | 2,551   |  
|Other accrued expenses                                                                    |  |                  | 26      |   |           |   | 569                         |  |   | 6,621        |   |  |              |         |   |  |   | 7,216   |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total current liabilities                                                                 |  |                  | 17,426  |   |           |   | 220,992                     |  |   | 288,741      |   |  |              | (465,981 | ) |  |   | 61,178  |  
|Long-term debt                                                                            |  |                  |        |   |           |   |                            |  |   | 165,000      |   |  |              |         |   |  |   | 165,000 |  
|Deferred income taxes                                                                     |  |                  | 112     |   |           |   | 1,493                       |  |   | 32,882       |   |  |              | (14,205  | ) |  |   | 20,282  |  
|Other long term liabilities                                                               |  |                  |        |   |           |   |                            |  |   | 5,057        |   |  |              |         |   |  |   | 5,057   |  
|Deferred rent                                                                             |  |                  |        |   |           |   | 2,559                       |  |   | 14,413       |   |  |              |         |   |  |   | 16,972  |  
|Commitments and contingencies                                                             |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Stockholders equity:                                                                     |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Common stock, $0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding |  |                  |        |   |           |   |                            |  |   |             |   |  |              |         |   |  |   |        |  
|Additional paid-in capital                                                                |  |                  | 157,204 |   |           |   | 20,165                      |  |   | 166,791      |   |  |              | (186,956 | ) |  |   | 157,204 |  
|Accumulated other comprehensive loss                                                      |  |                  | (1,350  | ) |           |   |                            |  |   | (1,350       | ) |  |              | 1,350    |   |  |   | (1,350  | )
|Retained earnings                                                                         |  |                  | 3,940   |   |           |   | 18,540                      |  |   | 10,841       |   |  |              | (29,382  | ) |  |   | 3,940   |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total stockholders equity                                                                |  |                  | 159,794 |   |           |   | 38,705                      |  |   | 176,282      |   |  |              | (214,988 | ) |  |   | 159,794 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  
|Total liabilities and stockholders equity                                                |  | $                | 177,332 |   |           | $ | 263,749                     |  | $ | 682,375      |   |  | $            | (695,174 | ) |  | $ | 428,283 |  
|                                                                                          |  |                  |         |   |           |   |                             |  |   |              |   |  |              |          |   |  |   |         |  



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED

SEPTEMBER 27, 2008

(In thousands)



|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |       |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                 |  | $                |      |   |               | $ | 28,726 |                             |  | $ | 122,592      |   |  | $            |       |   |  | $ | 151,318 |  
|Commissions                                               |  |                  |      |   |               |   | 6,354  |                             |  |   | 1,608        |   |  |              | (7,962 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |      |   |               |   | 20,239 |                             |  |   | 82,482       |   |  |              | (1,087 | ) |  |   | 101,634 |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Gross profit                                              |  |                  |      |   |               |   | 14,841 |                             |  |   | 41,718       |   |  |              | (6,875 | ) |  |   | 49,684  |  
|Selling, general and administrative expenses              |  |                  | 607   |   |               |   | 9,995  |                             |  |   | 36,660       |   |  |              | (6,875 | ) |  |   | 40,387  |  
|Related party expenses                                    |  |                  |      |   |               |   |       |                             |  |   | 397          |   |  |              |       |   |  |   | 397     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (607  | ) |               |   | 4,846  |                             |  |   | 4,661        |   |  |              |       |   |  |   | 8,900   |  
|Interest income                                           |  |                  |      |   |               |   | (5     | )                           |  |   | (22          | ) |  |              |       |   |  |   | (27     | )
|Interest expense                                          |  |                  |      |   |               |   | 735    |                             |  |   | 4,544        |   |  |              |       |   |  |   | 5,279   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (607  | ) |               |   | 4,116  |                             |  |   | 139          |   |  |              |       |   |  |   | 3,648   |  
|(Benefit) provision for income taxes                      |  |                  | (261  | ) |               |   | 1,572  |                             |  |   | 382          |   |  |              |       |   |  |   | 1,693   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (346  | ) |               |   | 2,544  |                             |  |   | (243         | ) |  |              |       |   |  |   | 1,955   |  
|Equity in net earnings of subsidiary                      |  |                  | 2,301 |   |               |   |       |                             |  |   | 2,544        |   |  |              | (4,845 | ) |  |   |        |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                |  | $                | 1,955 |   |               | $ | 2,544  |                             |  | $ | 2,301        |   |  | $            | (4,845 | ) |  | $ | 1,955   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED

SEPTEMBER 27, 2008

(In thousands)



|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                 |  | $                |       |   |               | $ | 85,918 |                             |  | $ | 372,491      |   |  | $            |        |   |  | $ | 458,409 |  
|Commissions                                               |  |                  |       |   |               |   | 19,582 |                             |  |   | 5,213        |   |  |              | (24,795 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |       |   |               |   | 61,128 |                             |  |   | 250,713      |   |  |              | (3,416  | ) |  |   | 308,425 |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                              |  |                  |       |   |               |   | 44,372 |                             |  |   | 126,991      |   |  |              | (21,379 | ) |  |   | 149,984 |  
|Selling, general and administrative expenses              |  |                  | 1,728  |   |               |   | 30,082 |                             |  |   | 109,549      |   |  |              | (21,379 | ) |  |   | 119,980 |  
|Related party expenses                                    |  |                  |       |   |               |   |       |                             |  |   | 1,132        |   |  |              |        |   |  |   | 1,132   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (1,728 | ) |               |   | 14,290 |                             |  |   | 16,310       |   |  |              |        |   |  |   | 28,872  |  
|Interest income                                           |  |                  |       |   |               |   | (10    | )                           |  |   | (39          | ) |  |              |        |   |  |   | (49     | )
|Interest expense                                          |  |                  |       |   |               |   | 3,246  |                             |  |   | 12,822       |   |  |              |        |   |  |   | 16,068  |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (1,728 | ) |               |   | 11,054 |                             |  |   | 3,527        |   |  |              |        |   |  |   | 12,853  |  
|(Benefit) provision for income taxes                      |  |                  | (744   | ) |               |   | 4,212  |                             |  |   | 1,814        |   |  |              |        |   |  |   | 5,282   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (984   | ) |               |   | 6,842  |                             |  |   | 1,713        |   |  |              |        |   |  |   | 7,571   |  
|Equity in net earnings of subsidiary                      |  |                  | 8,555  |   |               |   |       |                             |  |   | 6,842        |   |  |              | (15,397 | ) |  |   |        |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                |  | $                | 7,571  |   |               | $ | 6,842  |                             |  | $ | 8,555        |   |  | $            | (15,397 | ) |  | $ | 7,571   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



19



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED

SEPTEMBER 29, 2007

(In thousands)



|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |       |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                 |  | $                |      |   |               | $ | 24,487 |                             |  | $ | 110,639      |   |  | $            |       |   |  | $ | 135,126 |  
|Commissions                                               |  |                  |      |   |               |   | 6,090  |                             |  |   | 1,601        |   |  |              | (7,691 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |      |   |               |   | 17,528 |                             |  |   | 74,385       |   |  |              | (1,060 | ) |  |   | 90,853  |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Gross profit                                              |  |                  |      |   |               |   | 13,049 |                             |  |   | 37,855       |   |  |              | (6,631 | ) |  |   | 44,273  |  
|Selling, general and administrative expenses              |  |                  | 467   |   |               |   | 8,307  |                             |  |   | 34,224       |   |  |              | (6,631 | ) |  |   | 36,367  |  
|Related party expenses                                    |  |                  |      |   |               |   |       |                             |  |   | 346          |   |  |              |       |   |  |   | 346     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (467  | ) |               |   | 4,742  |                             |  |   | 3,285        |   |  |              |       |   |  |   | 7,560   |  
|Interest income                                           |  |                  |      |   |               |   | (4     | )                           |  |   | (55          | ) |  |              |       |   |  |   | (59     | )
|Interest expense                                          |  |                  |      |   |               |   | 3,021  |                             |  |   | 2,584        |   |  |              |       |   |  |   | 5,605   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (467  | ) |               |   | 1,725  |                             |  |   | 756          |   |  |              |       |   |  |   | 2,014   |  
|(Benefit) provision for income taxes                      |  |                  | (165  | ) |               |   | 515    |                             |  |   | 383          |   |  |              |       |   |  |   | 733     |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (302  | ) |               |   | 1,210  |                             |  |   | 373          |   |  |              |       |   |  |   | 1,281   |  
|Equity in net earnings of subsidiary                      |  |                  | 1,583 |   |               |   |       |                             |  |   | 1,210        |   |  |              | (2,793 | ) |  |   |        |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                |  |                  | 1,281 |   |               |   | 1,210  |                             |  |   | 1,583        |   |  |              | (2,793 | ) |  |   | 1,281   |  
|                                                          |  |                  |       |   |               |   |        |                             |  |   |              |   |  |              |        |   |  |   |         |  

VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED

SEPTEMBER 29, 2007

(In thousands)



|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                          |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                 |  | $                |       |   |               | $ | 73,242 |                             |  | $ | 332,850      |   |  | $            |        |   |  | $ | 406,092 |  
|Commissions                                               |  |                  |       |   |               |   | 18,706 |                             |  |   | 4,569        |   |  |              | (23,275 | ) |  |   |        |  
|Cost of goods sold                                        |  |                  |       |   |               |   | 51,691 |                             |  |   | 222,817      |   |  |              | (2,919  | ) |  |   | 271,589 |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                              |  |                  |       |   |               |   | 40,257 |                             |  |   | 114,602      |   |  |              | (20,356 | ) |  |   | 134,503 |  
|Selling, general and administrative expenses              |  |                  | 1,058  |   |               |   | 27,135 |                             |  |   | 100,553      |   |  |              | (20,356 | ) |  |   | 108,390 |  
|Related party expenses                                    |  |                  |       |   |               |   |       |                             |  |   | 1,015        |   |  |              |        |   |  |   | 1,015   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                             |  |                  | (1,058 | ) |               |   | 13,122 |                             |  |   | 13,034       |   |  |              |        |   |  |   | 25,098  |  
|Other                                                     |  |                  |       |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   |        |  
|Interest income                                           |  |                  |       |   |               |   | (9     | )                           |  |   | (153         | ) |  |              |        |   |  |   | (162    | )
|Interest expense                                          |  |                  |       |   |               |   | 3,021  |                             |  |   | 13,731       |   |  |              |        |   |  |   | 16,752  |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before (benefit) provision for income taxes |  |                  | (1,058 | ) |               |   | 10,110 |                             |  |   | (544         | ) |  |              |        |   |  |   | 8,508   |  
|(Benefit) provision for income taxes                      |  |                  | (394   | ) |               |   | 3,765  |                             |  |   | (305         | ) |  |              |        |   |  |   | 3,066   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income before equity in net earnings of subsidiary |  |                  | (664   | ) |               |   | 6,345  |                             |  |   | (239         | ) |  |              |        |   |  |   | 5,442   |  
|Equity in net earnings of subsidiary                      |  |                  | 6,106  |   |               |   |       |                             |  |   | 6,345        |   |  |              | (12,451 | ) |  |   |        |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                |  | $                | 5,442  |   |               | $ | 6,345  |                             |  | $ | 6,106        |   |  | $            | (12,451 | ) |  | $ | 5,442   |  
|                                                          |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



20



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED

SEPTEMBER 27, 2008

(In thousands)



|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                  |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Cash flows from operating activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                                        |  | $                | 7,571  |   |               | $ | 6,842  |                             |  | $ | 8,555        |   |  | $            | (15,397 | ) |  | $ | 7,571   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Loss on disposal of fixed assets                                                  |  |                  |       |   |               |   | 6      |                             |  |   | 45           |   |  |              |        |   |  |   | 51      |  
|Depreciation and amortization                                                     |  |                  |       |   |               |   | 2,590  |                             |  |   | 10,881       |   |  |              |        |   |  |   | 13,471  |  
|Deferred income taxes                                                             |  |                  | (744   | ) |               |   | (699   | )                           |  |   | (25          | ) |  |              |        |   |  |   | (1,468  | )
|Deferred rent                                                                     |  |                  |       |   |               |   | 913    |                             |  |   | 1,356        |   |  |              |        |   |  |   | 2,269   |  
|Equity compensation expense                                                       |  |                  | 1,728  |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   | 1,728   |  
|Equity in earnings of subsidiary                                                  |  |                  | (8,555 | ) |               |   |       |                             |  |   | (6,842       | ) |  |              | 15,397  |   |  |   |        |  
|Changes in operating assets and liabilities:                                      |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Inventories                                                                       |  |                  |       |   |               |   | (1,277 | )                           |  |   | (10,026      | ) |  |              |        |   |  |   | (11,303 | )
|Prepaid expenses and other current assets                                         |  |                  |       |   |               |   | (37    | )                           |  |   | 259          |   |  |              |        |   |  |   | 222     |  
|Intercompany                                                                      |  |                  |        |   |               |   | (6,270 | )                           |  |   | 6,270        |   |  |              |        |   |  |   |        |  
|Other non-current assets                                                          |  |                  |       |   |               |   | 20     |                             |  |   | (170         | ) |  |              |        |   |  |   | (150    | )
|Accounts payable                                                                  |  |                  |       |   |               |   | (97    | )                           |  |   | (6,703       | ) |  |              |        |   |  |   | (6,800  | )
|Accrued expenses and other current liabilities                                    |  |                  |       |   |               |   | 4,559  |                             |  |   | (543         | ) |  |              |        |   |  |   | 4,016   |  
|Other long-term liabilities                                                       |  |                  |       |   |               |   |       |                             |  |   | 109          |   |  |              |        |   |  |   | 109     |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash provided by operating activities                                         |  |                  |       |   |               |   | 6,550  |                             |  |   | 3,166        |   |  |              |        |   |  |   | 9,716   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Cash flows from investing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Capital expenditures                                                              |  |                  |       |   |               |   | (6,223 | )                           |  |   | (16,183      | ) |  |              |        |   |  |   | (22,406 | )
|Intangible assets acquired in asset purchases                                     |  |                  |       |   |               |   |       |                             |  |   | (3,454       | ) |  |              |        |   |  |   | (3,454  | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash used in investing activities                                             |  |                  |       |   |               |   | (6,223 | )                           |  |   | (19,637      | ) |  |              |        |   |  |   | (25,860 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Cash flows from financing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Borrowings under revolving credit agreement                                       |  |                  |       |   |               |   |       |                             |  |   | 20,000       |   |  |              |        |   |  |   | 20,000  |  
|Repayment of borrowings under revolving credit agreement                          |  |                  |       |   |               |   |       |                             |  |   | (3,000       | ) |  |              |        |   |  |   | (3,000  | )
|Dividend to Parent                                                                |  |                  |       |   |               |   |       |                             |  |   | (562         | ) |  |              |        |   |  |   | (562    | )
|Deferred financing fees                                                           |  |                  |       |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   |        |  
|Payments of capital lease obligation                                              |  |                  |       |   |               |   |       |                             |  |   | (100         | ) |  |              |        |   |  |   | (100    | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash provided by financing activities                                         |  |                  |       |   |               |   |       |                             |  |   | 16,338       |   |  |              |        |   |  |   | 16,338  |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                  |       |   |               |   | 327    |                             |  |   | (133         | ) |  |              |        |   |  |   | 194     |  
|Cash and cash equivalents beginning of period                                     |  |                  |       |   |               |   | 567    |                             |  |   | 886          |   |  |              |        |   |  |   | 1,453   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Cash and cash equivalents end of period                                           |  | $                |       |   |               | $ | 894    |                             |  | $ | 753          |   |  | $            |        |   |  | $ | 1,647   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



21



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VS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED

SEPTEMBER 29, 2007

(In thousands)



|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | --------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                  |  | VS Holdings,Inc. |        |   | VS DirectInc. |   |        | VitaminShoppeIndustriesInc. |  |   | Eliminations |   |  | Consolidated |        
|Cash flows from operating activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                                        |  | $                | 5,442  |   |               | $ | 6,345  |                             |  | $ | 6,106        |   |  | $            | (12,451 | ) |  | $ | 5,442   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Loss on disposal of fixed assets                                                  |  |                  |       |   |               |   | 17     |                             |  |   | 54           |   |  |              |        |   |  |   | 71      |  
|Depreciation and amortization                                                     |  |                  |       |   |               |   | 1,701  |                             |  |   | 10,134       |   |  |              |        |   |  |   | 11,835  |  
|Deferred income taxes                                                             |  |                  | (283   | ) |               |   | 229    |                             |  |   | 2,732        |   |  |              |        |   |  |   | 2,678   |  
|Deferred rent                                                                     |  |                  |       |   |               |   | 186    |                             |  |   | 1,230        |   |  |              |        |   |  |   | 1,416   |  
|Equity compensation expense                                                       |  |                  | 1,058  |   |               |   |       |                             |  |   |             |   |  |              |        |   |  |   | 1,058   |  
|Equity in earnings of subsidiary                                                  |  |                  | (6,106 | ) |               |   |       |                             |  |   | (6,345       | ) |  |              | 12,451  |   |  |   |        |  
|Changes in operating assets and liabilities:                                      |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Inventories                                                                       |  |                  |       |   |               |   | (1,756 | )                           |  |   | (8,927       | ) |  |              |        |   |  |   | (10,683 | )
|Prepaid expenses and other current assets                                         |  |                  | (111   | ) |               |   | 20     |                             |  |   | 485          |   |  |              |        |   |  |   | 394     |  
|Intercompany                                                                      |  |                  |       |   |               |   | (9,207 | )                           |  |   | 9,207        |   |  |              |        |   |  |   |        |  
|Other non-current assets                                                          |  |                  |       |   |               |   |       |                             |  |   | 14           |   |  |              |        |   |  |   | 14      |  
|Accounts payable                                                                  |  |                  |       |   |               |   | 177    |                             |  |   | (1,994       | ) |  |              |        |   |  |   | (1,817  | )
|Accrued expenses and other current liabilities                                    |  |                  |       |   |               |   | 3,408  |                             |  |   | (3,090       | ) |  |              |        |   |  |   | 318     |  
|Other long-term liabilities                                                       |  |                  |       |   |               |   |       |                             |  |   | 27           |   |  |              |        |   |  |   | 27      |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash provided by operating activities                                         |  |                  |       |   |               |   | 1,120  |                             |  |   | 9,633        |   |  |              |        |   |  |   | 10,753  |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Cash flows from investing activities:                                             |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Capital expenditures                                                              |  |                  |       |   |               |   | (1,239 | )                           |  |   | (8,851       | ) |  |              |        |   |  |   | (10,090 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash used in investing activities                                             |  |                  |       |   |               |   | (1,239 | )                           |  |   | (8,851       | ) |  |              |        |   |  |   | (10,090 | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|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  | )
|Deferred financing fees                                                           |  |                  |       |   |               |   |       |                             |  |   | (20          | ) |  |              |        |   |  |   | (20     | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash flows used in financing activities                                       |  |                  |       |   |               |   |       |                             |  |   | (20          | ) |  |              |        |   |  |   | (20     | )
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Net increase in cash and cash equivalents                                         |  |                  |       |   |               |   | (119   | )                           |  |   | 762          |   |  |              |        |   |  |   | 643     |  
|Cash and cash equivalents beginning of period                                     |  |                  |       |   |               |   | 885    |                             |  |   | 587          |   |  |              |        |   |  |   | 1,472   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  
|Cash and cash equivalents end of period                                           |  | $                |       |   |               | $ | 766    |                             |  | $ | 1,349        |   |  | $            |        |   |  | $ | 2,115   |  
|                                                                                  |  |                  |        |   |               |   |        |                             |  |   |              |   |  |              |         |   |  |   |         |  



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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, 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 28,
2008 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 September 27, 2008, we operated 374 stores located in 33 states and the District of Columbia and sold direct to consumers through our web sites, www.vitaminshoppe.com and www.BodyTech.com, and our nationally
circulated catalog. 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 national 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 Irving Place Capital Partners II, L.P.
(formerly Bear Stearns Merchant Banking Partners II, L.P.) and its affiliated entities (collectively, IPCP) 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 internet and catalog 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 September 27, 2008, we opened 250 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 sites, www.vitaminshoppe.com and www.BodyTech.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.



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Our catalog is mailed regularly 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, though an additional 6,000 SKUs are available through
special order. Our Web site offers our customers online access to our full assortment of over 20,000 SKUs.

Trends and Other Factors Affecting Our
Business

Our performance is affected by trends that impact 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, which may be impacted heavily by the current economic conditions, 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 259 stores and operate 383 stores located in 34 states and the District of Columbia
as of November 1, 2008.

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 operating
results.

Critical Accounting Policies

Our significant accounting policies are described in Note 3 of the notes to the Consolidated Financial Statements included in our financial statements for Fiscal 2007, Fiscal 2006, and Fiscal 2005, filed with the Securities and Exchange
Commission on March 28, 2008, 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. 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 29, 2007.

General Definitions for Operating Results

Net Sales consist of sales, net of sales returns and deferred sales, from comparable stores and non comparable stores, as well as sales made
directly to our internet and catalog 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, 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.

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 amortization, and other selling, general and administrative expenses.



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Related party expensesconsist of management fees incurred and paid to IPC Manager II, LLC
(formerly Bear Stearns Merchant Manager II, LLC).

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

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

Interest expense includes interest on our second priority senior
secured floating rate notes (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 |         |   | Nine Months Ended |  
|                                       |  | September 27,2008  |         |   | September 29,2007 |   |         | September 27,2008 |  |   | September 29,2007 |  
|Net sales                              |  | $                  | 151,318 |   |                   | $ | 135,126 |                   |  | $ | 458,409           |   |  | $ | 406,092 |  
|Increase in comparable store net sales |  |                    | 6.4     | % |                   |   | 7.3     | %                 |  |   | 7.0               | % |  |   | 7.2     | %
|Gross profit as a percent of net sales |  |                    | 32.8    | % |                   |   | 32.8    | %                 |  |   | 32.7              | % |  |   | 33.1    | %
|Income from operations                 |  | $                  | 8,900   |   |                   | $ | 7,560   |                   |  | $ | 28,872            |   |  | $ | 25,098  |  
|EBITDA (1)                             |  | $                  | 14,067  |   |                   | $ | 11,778  |                   |  | $ | 43,736            |   |  | $ | 37,479  |  



|(1) | EBITDA represents 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 |        |   | Nine Months Ended |  
|                                                           |  | September 27,2008  |        |   | September 29,2007 |   |        | September 27,2008 |  |   | September 29,2007 |  
|Statement of Operations Data:                              |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Net income                                                 |  | $                  | 1,955  |   |                   | $ | 1,281  |                   |  | $ | 7,571             |   |  | $ | 5,442  |  
|Provision for income taxes                                 |  |                    | 1,693  |   |                   |   | 733    |                   |  |   | 5,282             |   |  |   | 3,066  |  
|Interest income                                            |  |                    | (27    | ) |                   |   | (59    | )                 |  |   | (49               | ) |  |   | (162   | )
|Interest expense                                           |  |                    | 5,279  |   |                   |   | 5,605  |                   |  |   | 16,068            |   |  |   | 16,752 |  
|Depreciation and amortization, including deferred rent (a) |  |                    | 5,167  |   |                   |   | 4,218  |                   |  |   | 14,864            |   |  |   | 12,381 |  
|                                                           |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|EBITDA                                                     |  | $                  | 14,067 |   |                   | $ | 11,778 |                   |  | $ | 43,736            |   |  | $ | 37,479 |  
|                                                           |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  



|(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:



|                                               |  |                   |         |   |                   |   |         |  
|---------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                               |  | Nine Months Ended |        
|                                               |  | September 27,2008 |         |   | September 29,2007 |  
|EBITDA                                         |  | $                 | 43,736  |   |                   | $ | 37,479  |  
|Interest expense, net                          |  |                   | (16,019 | ) |                   |   | (16,590 | )
|Provision for income taxes                     |  |                   | (5,282  | ) |                   |   | (3,066  | )
|Loss on disposal of fixed assets               |  |                   | 51      |   |                   |   | 71      |  
|Deferred income taxes                          |  |                   | (1,468  | ) |                   |   | 2,678   |  
|Deferred financing fees amortization and other |  |                   | 876     |   |                   |   | 870     |  
|Equity compensation expense                    |  |                   | 1,728   |   |                   |   | 1,058   |  
|Changes in operating assets and liabilities:   |  |                   |         |   |                   |   |         |  
|Inventories                                    |  |                   | (11,303 | ) |                   |   | (10,683 | )
|Prepaid expenses and other current assets      |  |                   | 222     |   |                   |   | 394     |  
|Other non-current assets                       |  |                   | (150    | ) |                   |   | 14      |  
|Accounts payable                               |  |                   | (6,800  | ) |                   |   | (1,817  | )
|Accrued expenses and other current liabilities |  |                   | 4,016   |   |                   |   | 318     |  
|Other long-term liabilities                    |  |                   | 109     |   |                   |   | 27      |  
|                                               |  |                   |         |   |                   |   |         |  
|Net cash provided by operating activities      |  | $                 | 9,716   |   |                   | $ | 10,753  |  
|                                               |  |                   |         |   |                   |   |         |  

The following table shows the growth in our network of stores during the three and nine months
ended September 27, 2008 and September 29, 2007:



|                                   |  |                    |   |                   |                   |  |                   |   |  |                  
|---------------------------------- |  | ------------------ | - | ----------------- | ----------------- |  | ----------------- | - |  | -----------------
|                                   |  | Three Months Ended |   | Nine Months Ended
|                                   |  | September 27,2008  |   |                   | September 29,2007 |  | September 27,2008 |   |  | September 29,2007
|Store Data:                        |  |                    |   |                   |                   |  |                   |   |  |                  
|Stores open at beginning of period |  | 361                |   |                   | 322               |  | 341               |   |  | 306              
|Stores opened                      |  | 14                 |   |                   | 11                |  | 34                |   |  | 27               
|Stores closed                      |  | (1                 | ) |                   |                  |  | (1                | ) |  |                 
|                                   |  |                    |   |                   |                   |  |                   |   |  |                  
|Stores open at end of period       |  | 374                |   |                   | 333               |  | 374               |   |  | 333              
|                                   |  |                    |   |                   |                   |  |                   |   |  |                  



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Results of Operations

The information presented below is for the three and nine months ended September 27, 2008 and September 29, 2007 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 nine months
ended September 27, 2008 and September 29, 2007 as a percentage of net sales:



|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   
|-------------------------------------------- |  | ------------------ | -- |  | ----------------- | -- |  | ----------------- | -- |  | ----------------- | --
|                                             |  | Three Months Ended |    |  | Nine Months Ended |   
|                                             |  | September 27,2008  |    |  | September 29,2007 |    |  | September 27,2008 |    |  | September 29,2007 |   
|Net sales                                    |  | 100.0              | %  |  | 100.0             | %  |  | 100.0             | %  |  | 100.0             | % 
|Cost of goods sold                           |  | 67.2               | %  |  | 67.2              | %  |  | 67.3              | %  |  | 66.9              | % 
|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   
|Gross profit                                 |  | 32.8               | %  |  | 32.8              | %  |  | 32.7              | %  |  | 33.1              | % 
|Selling, general and administrative expenses |  | 26.7               | %  |  | 26.9              | %  |  | 26.2              | %  |  | 26.7              | % 
|Related party expenses                       |  | 0.2                | %  |  | 0.3               | %  |  | 0.2               | %  |  | 0.2               | % 
|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   
|Income from operations                       |  | 5.9                | %  |  | 5.6               | %  |  | 6.3               | %  |  | 6.2               | % 
|Interest income                              |  | (0.0               | %) |  | (0.0              | %) |  | (0.0              | %) |  | (0.0              | %)
|Interest expense                             |  | 3.5                | %  |  | 4.1               | %  |  | 3.4               | %  |  | 4.1               | % 
|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   
|Income before provision for income taxes     |  | 2.4                | %  |  | 1.5               | %  |  | 2.9               | %  |  | 2.1               | % 
|Provision for income taxes                   |  | 1.1                | %  |  | 0.6               | %  |  | 1.2               | %  |  | 0.8               | % 
|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   
|Net income                                   |  | 1.3                | %  |  | 0.9               | %  |  | 1.7               | %  |  | 1.3               | % 
|                                             |  |                    |    |  |                   |    |  |                   |    |  |                   |   

Three Months Ended September 27, 2008 Compared To Three Months Ended September 29, 2007

Net Sales

Net sales increased
$16.2 million, or 12.0%, to $151.3 million for the three months ended September 27, 2008 compared to $135.1 million for the three months ended September 29, 2007. The increase was the result of an increase in our comparable store sales,
new sales from our non-comparable stores, and an increase in our direct sales.

Retail

Net sales from our retail stores increased $15.3 million, or 13.1%, to $131.8 million for the three months ended September 27, 2008 compared to
$116.5 million for the three months ended September 29, 2007. We operated 374 stores as of September 27, 2008 compared to 333 stores as of September 29, 2007. Our overall store sales for the three months ended September 27, 2008
increased due to non-comparable store sales increases of $7.9 million and an increase in comparable store sales of $7.4 million, or 6.4%. Our overall sales increased primarily in the categories of supplements, which increased $3.8 million, or 13.1%;
vitamins and multivitamins, which increased $2.2 million, or 14.8%; sports nutrition, which increased by $6.3 million, or 23.9%; minerals, which increased $0.5 million, or 13.1%; and herbs, which increased $2.2 million, or 10.7%.

The supplements category, which is among the largest selling product categories in our mix, continues to experience significant growth in sales of
essential fatty acids, or EFAs, which have been responsible for most of the growth in the supplement category for several quarters. 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 continued strength in sales of EFAs for the remainder of this fiscal year. Product sales in the sports nutrition category
increased at a greater rate than the overall increase in net sales during the third quarter of Fiscal 2008, and has done so since the middle of 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 functionally specific supplementation. Sales in the vitamin and multi-vitamin category also increased at a rate greater than the overall increase in net sales during the third quarter of
Fiscal 2008, as we experienced significant growth in sales of multi-vitamins, as we released new special formulations this quarter, and in Vitamin D, which we believe was due in part to recent favorable press.

Direct

Net sales to our
direct customers increased $0.9 million, or 5.0%, to $19.6 million for the three months ended September 27, 2008 compared to $18.6 million for the three months ended September 29, 2007. The overall increase in our direct sales was due to
an increase in our internet sales of approximately $2.4 million which was offset by a decrease in our catalog sales. The increase in web-based sales was largely due to a greater influx of customers this quarter as compared to the quarter ended
September 29, 2007, as a result of our prior web-based marketing initiatives. We have reduced our catalog circulation and customer prospecting as we believe catalog purchasing in general is declining in popularity as a purchasing medium,
especially in the wake of the growth 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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##### Table of Contents

Cost of Goods Sold

Cost of goods sold, which includes product, warehouse and distribution and occupancy costs, increased $10.8 million, or 11.9%, to $101.6 million for the three months ended September 27, 2008 compared to $90.9
million for the three months ended September 29, 2007. The increase was primarily due to an increase in product costs and occupancy costs for the quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007.
Cost of goods sold as a percentage of net sales remained level at 67.2% for the three months ended September 27, 2008 and for the three months ended September 29, 2007.

Product costs increased $7.3 million, or 10.3%, to $77.6 million for the three months ended September 27, 2008, compared to $70.3 million for the
three months ended September 29, 2007 primarily as a result of greater sales this quarter as compared to the quarter ended September 29, 2007. Product costs as a percentage of net sales decreased to 51.3% for the three months ended
September 27, 2008 compared to 52.0% for the three months ended September 29, 2007. The 0.7% decrease as a percentage of net sales was primarily the result of an increase in purchase discounts and payment term discount incentives of 0.4%
during the quarter ended September 27, 2008 as compared to the quarter ended September 29, 2007.

Warehouse and distribution
costs increased $1.0 million, or 21.2%, to $5.6 million for the three months ended September 27, 2008 compared to $4.6 million for the three months ended September 29, 2007. Warehouse and distribution costs as a percentage of net sales
increased to 3.7% for the three months ended September 27, 2008, compared to 3.4% for the three months ended September 29, 2007. The 0.3% increase as a percentage of net sales was due to an increase in transportation costs, largely
attributable to increased shipments to our stores as we increased in-store inventory holding levels during three months ended September 27, 2008, as compared to the three months ended September 29, 2007.

Occupancy costs increased $2.5 million, or 15.9%, to $18.4 million for the three months ended September 27, 2008 compared to $15.9 million for the
three months ended September 29, 2007. Occupancy costs as a percentage of net sales increased to 12.2% for the three months ended September 27, 2008, compared to 11.8% for the three months ended September 29, 2007. This increase as a
percentage of net sales is mainly attributable to increases in utility and real estate tax expenses as well as increased rent for our newer store leases.

Gross Profit

As a result of the foregoing, gross profit increased $5.4 million, or 12.2%, to $49.7 million for the
three months ended September 27, 2008 compared to $44.3 million for the three months ended September 29, 2007.

Selling, General and
Administrative Expenses

Selling, general and administrative expenses, including operating payroll and related benefits, advertising
and promotion expense, depreciation and amortization, and other selling, general and administrative expenses, increased $4.0 million, or 11.1%, to $40.4 million for the three months ended September 27, 2008, compared to $36.4 million for the
three months ended September 29, 2007. 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 September 27,
2008 decreased to 26.7% compared to 26.9% for the three months ended September 29, 2007.

Operating payroll and related benefits
increased $1.5 million, or 11.0%, to $15.0 million for the three months ended September 27, 2008 compared to $13.5 million for the three months ended September 29, 2007. Operating payroll and related benefits expenses as a percentage of
net sales decreased to 9.9% for the three months ended September 27, 2008 compared to 10.0% for the three months ended September 29, 2007. The decrease as a percentage of net sales was primarily due to greater sales per hour for the
quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007. The increase in sales per hour was partially offset by an increase in average wage.

Advertising and promotion expenses increased $0.2 million, or 8.3%, to $3.2 million for the three months ended September 27, 2008 compared to $3.0
million for the three months ended September 29, 2007. Advertising and promotion expenses as a percentage of net sales decreased to 2.1% for the three months ended September 27, 2008 from 2.2% for the three months ended September 29,
2007. The decrease is primarily due to a decline in our catalog circulation for the quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007, as we reduce our catalog advertising efforts.



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Other selling, general and administrative expenses, which includes depreciation and amortization expense,
increased $2.3 million, or 11.5%, to $22.2 million for the three months ended September 27, 2008 compared to $19.9 million for the three months ended September 29, 2007. The increase was due primarily to increases in depreciation and
amortization expense of approximately $0.7 million, and corporate payroll expenses of $0.7 million. The increase in payroll was attributable to increases to our corporate staff to meet the needs of our growth. In addition to the above, there was an
increase in credit card fees of approximately $0.3 million and general operating costs of $0.3 million due to greater sales for the quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007. Other selling,
general and administrative expenses as a percentage of net sales remained level at 14.7% during the three months ended September 27, 2008 compared to the three months ended September 29, 2007.

Related Party Expenses

Related party expenses
increased $0.1 million, or 14.6%, to $0.4 million for the three months ended September 27, 2008, compared to $0.3 million for the three months ended September 29, 2007.

Income from Operations

As a result of the foregoing, income from operations increased $1.3
million, or 17.7%, to $8.9 million for the three months ended September 27, 2008 compared to $7.6 million for the three months ended September 29, 2007. Income from operations as a percentage of net sales increased to 5.9% for the three
months ended September 27, 2008 compared to 5.6% for the three months ended September 29, 2007.

Retail

Income from operations for the retail segment increased $2.3 million, or 12.8%, to $20.5 million for the three months ended September 27, 2008
compared to $18.2 million for the three months ended September 29, 2007. Income from operations as a percentage of net sales for the retail segment decreased to 15.5% for the three months ended September 27, 2008 compared to 15.6% for the
three months ended September 29, 2007. The decrease as a percentage of net sales was primarily due to an increase in store pre-opening costs as a percentage of net sales, reflecting longer lead times for the preparation of the opening of our
Hawaii and acquired Florida stores during the quarter ended September 27, 2008.

Direct

Income from operations for the direct segment increased $0.3 million, or 8.9%, to $3.6 million for the three months ended September 27, 2008 compared
to $3.3 million for the three months ended September 29, 2007. Income from operations as a percentage of net sales for the direct segment increased to 18.4% for the three months ended September 27, 2008 compared to 17.7% for the three
months ended September 29, 2007. The 0.7% increase in income from operations as a percentage of net sales was due to a decreases in product and distribution costs of 0.5% and 0.2%, respectively, as a percentage of net sales, as well as a 0.3%
decrease in advertising costs as a percentage of net sales, offset by an increase in payroll costs of 0.3% as a percentage of net sales during this quarter as compared to the same quarter last year. The decrease in product costs as a percentage of
net sales was primarily due to a decrease in promotional offers, as well as greater efficiencies in our inventory management, which led to fewer back-orders thus resulting in increased efficiencies in shipping during the three months ended
September 27, 2008, as compared to the three months ended September 29, 2007. Advertising costs as a percentage of sales decreased primarily as a result of a continued reduction in catalog mailings.

Corporate Costs

Corporate
costs increased by $1.3 million, or 9.2%, to $15.2 million for the three months ended September 27, 2008 compared to $13.9 million for the three months ended September 29, 2007. Corporate costs as a percentage of net sales decreased to
10.0% for the three months ended September 27, 2008 compared to 10.3% for the three months ended September 29, 2007. The dollar increase was primarily due to increases in depreciation and amortization expense of approximately $0.7 million,
and in payroll expenses of $0.7 million, during the quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007. Corporate costs as percentage of net sales decreased in part as a result of a decrease in
professional fees as a percentage of sales and in total dollars during the quarter ended September 27, 2008, compared to the quarter ended September 29, 2007.

Interest Income

Interest income decreased $32,000 to $27,000 for the three months ended
September 27, 2008 compared to $59,000 for the three months ended September 29, 2007. The decrease was due largely to lower interest rates, and lower cash balances during the three months ended September 27, 2008, as compared to the
three months ended September 29, 2007.



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Interest Expense

Interest expense decreased $0.3 million, or 5.8%, to $5.3 million for the three months ended September 27, 2008 compared to $5.6 million for the three months ended September 29, 2007. The decrease was due to
lower interest rates experienced during the quarter ended September 27, 2008, as compared to the three months ended September 29, 2007.

Provision for Income Taxes

We recognized $1.7 million of income tax expense during the three months ended
September 27, 2008 compared with $0.7 million for the three months ended September 29, 2007. The effective tax rate for the three months ended September 27, 2008 was 46.4%, compared to 36.4% for the three months ended
September 29, 2007. The effective rate for the current period, as compared to the same period last year, increased primarily due to year to date adjustments made in this quarter to reflect changes in certain state tax laws which occurred in
this quarter, which impacted our blended state tax rates. Before the adjustment for the effect of the change in state income tax rates, the effective rate was 38.2% for the quarter ended September 29, 2007. The effective rate, excluding the
aforementioned effect in tax rates, for the quarter ended September 27, 2008, as compared to the quarter ended September 29, 2007, was greater primarily due to the effect of the change in blended state tax rates.

Net Income

As a result of the foregoing, we
generated net income of $2.0 million for the three months ended September 27, 2008 compared to $1.3 million for the three months ended September 29, 2007.

Nine months Ended September 27, 2008 Compared To Nine months Ended September 29, 2007

Net
Sales

Net sales increased $52.3 million, or 12.9%, to $458.4 million for the nine months ended September 27, 2008 compared to
$406.1 million for the nine months ended September 29, 2007. The increase was the result of an increase in our comparable store sales, new sales from our non-comparable stores, and an increase in our direct sales.

Retail

Net sales from our
retail stores increased $49.5 million, or 14.2%, to $398.4 million for the nine months ended September 27, 2008 compared to $348.9 million for the nine months ended September 29, 2007. We operated 374 stores as of September 27, 2008
compared to 333 stores as of September 29, 2007. Our overall store sales for the nine months ended September 27, 2008 increased due to non-comparable store sales increases of $25.2 million and an increase in comparable store sales of $24.3
million, or 7.0%. Our overall sales increased primarily in the categories of supplements, which increased $10.1 million, or 11.6%; vitamins and multivitamins, which increased $5.9 million, or 13.0%; sports nutrition, which increased by $20.7
million, or 26.7%; minerals, which increased $1.4 million, or 13.1%; and weight management, which increased $2.9 million, or 12.9%.

The
supplements category, which is among the largest selling product categories in our mix, continues to experience significant growth in sales of essential fatty acids, or EFAs, which have been responsible for most of the growth in the supplement
category for several quarters. 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 continued strength in sales of EFAs for the remainder of this fiscal year. Product sales in the sports nutrition category increased at a greater rate than the overall increase in net sales during the nine months
ended September 27, 2008, and has done so since the middle of 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 functionally
specific supplementation.

Direct

Net sales to our direct customers increased $2.9 million, or 5.0%, to $60.1 million for the nine months ended September 27, 2008 compared to $57.2 million for the nine months ended September 29, 2007. The
overall increase in our direct sales was due to an increase in our internet sales of approximately $8.1 million which was offset by a decrease in our catalog sales. The increase in web-based sales was largely due to a greater influx of customers
during the nine months ended September 27, 2008, as compared to the nine months ended September 29, 2007, as a result of our prior web-based marketing initiatives. We have reduced our catalog circulation and customer prospecting as 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 $36.8 million, or 13.6%, to $308.4 million for the nine months ended September 27, 2008 compared to $271.6
million for the nine months ended September 29, 2007. The increase was primarily due to an increase in product costs and occupancy costs for the nine months ended September 27, 2008, as compared to the nine months ended September 29,
2007. Cost of goods sold as a percentage of net sales increased to 67.3% for the nine months ended September 27, 2008 compared to 66.9% for the nine months ended September 29, 2007.

Product costs increased $26.9 million, or 12.7%, to $239.0 million for the nine months ended September 27, 2008, compared to $212.1 million for the
nine months ended September 29, 2007 primarily as a result of greater sales during Fiscal 2008. Product costs as a percentage of net sales decreased to 52.1% for the nine months ended September 27, 2008 compared to 52.2% for the nine
months ended September 29, 2007. The 0.1% decrease as a percentage of net sales was primarily the result of increases in gross product costs of 0.9% as a percentage of net sales, offset by a decrease of 0.4% in markdowns as well as a increase
in inventory control efficiency of 0.4% as a percentage of net sales, during the nine months ended September 27, 2008 as compared to the nine months ended September 29, 2007.

Warehouse and distribution costs increased $2.5 million, or 17.9%, to $16.6 million for the nine months ended September 27, 2008 compared to $14.1
million for the nine months ended September 29, 2007. Warehouse and distribution costs as a percentage of net sales increased to 3.6% for the nine months ended September 27, 2008, compared to 3.5% for the nine months ended
September 29, 2007. The increase as a percentage of net sales is attributable to greater fuel costs as well as larger store shipments (for greater in-store inventory) during the nine months ended September 27, 2008, as compared to the nine
months ended September 29, 2007.

Occupancy costs increased $7.4 million, or 16.3%, to $52.8 million for the nine months ended
September 27, 2008 compared to $45.4 million for the nine months ended September 29, 2007. Occupancy costs as a percentage of net sales increased to 11.5% for the nine months ended September 27, 2008, compared to 11.2% for the nine
months ended September 29, 2007. This increase as a percentage of net sales is mainly attributable to the increases in utility and real estate tax expenses as well as increased rent for our newer store leases.

Gross Profit

As a result of the foregoing,
gross profit increased $15.5 million, or 11.5%, to $150.0 million for the nine months ended September 27, 2008 compared to $134.5 million for the nine months ended September 29, 2007.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including operating payroll and related benefits, advertising and promotion expense, depreciation and amortization, and other selling, general and administrative expenses, increased $11.6
million, or 10.7%, to $120.0 million for the nine months ended September 27, 2008, compared to $108.4 million for the nine months ended September 29, 2007. The components of selling, general and administrative expenses are explained below.
Selling, general and administrative expenses as a percentage of net sales for the nine months ended September 27, 2008 decreased to 26.2% compared to 26.7% for the nine months ended September 29, 2007.

Operating payroll and related benefits increased $4.4 million, or 11.0%, to $44.1 million for the nine months ended September 27, 2008 compared to
$39.7 million for the nine months ended September 29, 2007. Operating payroll and related benefits expenses as a percentage of net sales decreased to 9.6% for the nine months ended September 27, 2008 compared to 9.8% for the nine months
ended September 29, 2007. The decrease as a percentage of net sales was primarily due to greater sales per hour relative to net sales during the nine months ended September 27, 2008, as compared to the nine months ended September 29,
2007. The increase in sales per hour was partially offset by an increase in average wages.

Advertising and promotion expenses decreased
$0.9 million, or 8.1%, to $10.3 million for the nine months ended September 27, 2008 compared to $11.2 million for the nine months ended September 29, 2007. Advertising and promotion expenses as a percentage of net sales decreased to 2.2%
for the nine months ended September 27, 2008 from 2.8% for the nine months ended September 29, 2007. The decrease is primarily due to a decline in our catalog circulation for the nine months ended September 27, 2008, as compared to
the nine months ended September 29, 2007, as we are reducing our catalog advertising and prospecting efforts.

Other selling, general
and administrative expenses, which includes depreciation and amortization expense, increased $8.1 million, or 14.2%, to $65.6 million for the nine months ended September 27, 2008 compared to $57.5 million for the nine months ended
September 29, 2007. The dollar increase was due primarily to increases in depreciation and amortization expense of approximately $1.6 million, equity compensation expense of approximately $0.7 million, corporate payroll expenses of $2.7
million, and increases in



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store pre-opening costs of $0.8 million. The increase in payroll was attributable to increases to our corporate staff to meet the needs of our growth, and
the increase in pre-opening costs occurred as a result of the preparation of the opening of our Hawaii and acquired Florida stores which experienced delayed opening dates during Fiscal 2008. In addition to the above, there was an increase in credit
card fees of approximately $0.6 million and $1.0 million of additional general operating costs incurred due to greater sales during the nine months ended September 27, 2008, as compared to the nine months ended September 29, 2007. Other
selling, general and administrative expenses as a percentage of net sales increased to 14.3% during the nine months ended September 27, 2008 compared to 14.1% for the nine months ended September 29, 2007, due largely to the increases in
corporate payroll and stock-compensation expense.

Related Party Expenses

Related party expenses increased $0.1 million, or 11.6%, to $1.1 million for the nine months ended September 27, 2008, as compared to $1.0 million
for the nine months ended September 29, 2007.

Income from Operations

As a result of the foregoing, income from operations increased $3.8 million, or 15.0%, to $28.9 million for the nine months ended September 27, 2008
compared to $25.1 million for the nine months ended September 29, 2007. Income from operations as a percentage of net sales increased to 6.3% for the nine months ended September 27, 2008, compared to 6.2% for the nine months ended
September 29, 2007.

Retail

Income from operations for the retail segment increased $8.3 million, or 15.3%, to $62.5 million for the nine months ended September 27, 2008 compared to $54.2 million for the nine months ended September 29,
2007. Income from operations as a percentage of net sales for the retail segment increased to 15.7% for the nine months ended September 27, 2008 compared to 15.5% for the nine months ended September 29, 2007. The increase as a percentage
of net sales was primarily due to a decrease in product costs of 0.1% as a percentage of net sales, a decrease in payroll costs of 0.3% as a percentage of net sales, as well as a decrease in advertising expenses of 0.2% as a percent of net sales.
The decrease in payroll costs as a percentage of net sales is due largely to greater sales per hour relative to net sales during the nine months ended September 27, 2008, as compared to the nine months ended September 29, 2007. The
decrease in advertising as a percentage of net sales is a result of our reduced catalog advertising this Fiscal year as compared to the prior Fiscal year. These decreases were offset by an increase in occupancy expense of 0.2% as a percentage of net
sales, which is attributable to the increases in utilities and real estate tax expenses, and an increase in distribution costs of 0.2% as a percentage of net sales, attributable to increased fuel costs in the nine months ended September 27,
2008, as compared to the nine months ended September 29, 2007.

Direct

Income from operations for the direct segment increased $0.8 million, or 7.6%, to $11.3 million for the nine months ended September 27, 2008 compared
to $10.5 million for the nine months ended September 29, 2007. Income from operations as a percentage of net sales for the direct segment increased to 18.8% for the nine months ended September 27, 2008 compared to 18.4% for the nine months
ended September 29, 2007. This increase in income from operations as a percentage of net sales was due mainly to a 1.4% decrease in advertising costs as a percentage of net sales, as we are reducing our catalog advertising and prospecting
efforts offset by an increase in product costs of 1.2% as a percentage of net sales. The increase in product costs as a percentage of net sales was primarily due to product cost increases which were not offset by price increases.

Corporate Costs

Corporate
costs increased by $5.3 million, or 13.5%, to $44.9 million for the nine months ended September 27, 2008 compared to $39.6 million for the nine months ended September 29, 2007. Corporate costs as a percentage of net sales remained level at
9.8% for the nine months ended September 27, 2008 and the nine months ended September 29, 2007. The dollar increase was primarily due to increases in depreciation and amortization expense of approximately $1.6 million, increases in equity
compensation expense of approximately $0.7 million, and an increase in payroll of $2.7 million, attributable to our growing corporate infrastructure.

Interest Income

Interest income decreased $113,000 to $49,000 for the nine months ended September 27, 2008
compared to $162,000 for the nine months ended September 29, 2007. The decrease was due largely to lower interest rates, and lower cash balances during the nine months ended September 27, 2008, as compared to the nine months ended
September 29, 2007.



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Interest Expense

Interest expense decreased $0.7 million, or 4.1%, to $16.1 million for the nine months ended September 27, 2008 compared to $16.8 million for the nine months ended September 29, 2007. The decrease was due to
lower interest rates offset partially by larger outstanding short-term borrowings experienced during the nine months ended September 27, 2008, as compared to the nine months ended September 29, 2007.

Provision for Income Taxes

We recognized $5.3
million of income tax expense during the nine months ended September 27, 2008 compared with $3.1 million for the nine months ended September 29, 2007. The effective tax rate for the nine months ended September 27, 2008 was 41.1%,
compared to 36.0% for the nine months ended September 29, 2007. The effective rate for the current period, as compared to the same period last year, increased primarily due to changes to our blended state tax rates which resulted from changes
in our state apportionment factors for the nine months ended September 27, 2008 as compared to the nine months ended September 29, 2007.

Net Income

As a result of the foregoing, we generated net income of $7.6 million for the nine months ended
September 27, 2008 compared to $5.4 million for the nine months ended September 29, 2007.

Key Indicators of Liquidity and Capital Resources

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



|                          |  |                   |         |                  |   |        
|------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                          |  | September 27,2008 |         | December 29,2007
|Balance Sheet Data:       |  |                   |         |                  |   |        
|Cash and cash equivalents |  | $                 | 1,647   |                  | $ | 1,453  
|Working capital           |  |                   | 52,001  |                  |   | 51,227 
|Total assets              |  |                   | 457,173 |                  |   | 428,283
|Total debt                |  |                   | 186,591 |                  |   | 165,000
|Stockholders equity      |  |                   | 168,402 |                  |   | 159,794



|                                                           |  |                   |         |   |                   |   |         |  
|---------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                           |  | Nine Months Ended |        
|                                                           |  | September 27,2008 |         |   | September 29,2007 |  
|Other Information:                                         |  |                   |         |   |                   |   |         |  
|Depreciation and amortization, including deferred rent (1) |  | $                 | 15,740  |   |                   | $ | 13,251  |  
|Cash Flows Provided By (Used In):                          |  |                   |         |   |                   |   |         |  
|Operating activities                                       |  | $                 | 9,716   |   |                   | $ | 10,753  |  
|Investing activities                                       |  |                   | (25,860 | ) |                   |   | (10,090 | )
|Financing activities                                       |  |                   | 16,338  |   |                   |   | (20     | )
|                                                           |  |                   |         |   |                   |   |         |  
|Net increase in cash and cash equivalents                  |  | $                 | 194     |   |                   | $ | 643     |  
|                                                           |  |                   |         |   |                   |   |         |  



|(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 predominately through internally generated cash flow, supplemented with short-term financing. 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.



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We plan to spend up to $35 million in capital expenditures during Fiscal 2008, of which up to $27 million
will be in connection with our store growth and improvement plans with the remainder of up to $8 million being used for all other expenditures. Of the total capital expenditures projected for Fiscal 2008 we have already invested $25.9 million (which
includes the $3.5 million for our asset purchases) during the nine months ended September 27, 2008. We plan on opening approximately 60 stores during Fiscal 2008, of which we have already opened 34 stores as of September 27, 2008. 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 $165,000 to $200,000 at 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 September 27, 2008. At September 27, 2008, we had $1.6 million in cash and cash equivalents and $52.0 million in working capital. At December 29,
2007, we had $1.5 million in cash and cash equivalents and $51.2 million in working capital.

Cash Provided by Operating Activities

Cash provided by operating activities was $9.7 million for the nine months ended September 27, 2008, as compared to cash of $10.8 million provided by operating
activities for the nine months ended September 29, 2007. The $1.0 million decrease in cash flows from operating activities is primarily due to an increase in payments to our vendors (trade accounts payable), to take advantage of certain payment
terms, offset by an increase in accrued expenses and other liabilities, which arose from liabilities to various taxing authorities as certain of our net operating losses which were fully available during Fiscal 2007, were fully utilized during early
Fiscal 2008.

Cash Used in Investing Activities

Net cash used in investing activities during the nine months ended September 27, 2008 and September 29, 2007 was $25.9 million and $10.1 million, respectively. Capital expenditures during the nine months ended September 27,
2008, were used for the construction of 34 new stores, as well as the construction in progress for approximately 25 new stores to be opened in Fiscal 2008, and for improvements of certain of our existing stores. In addition, expenditures included
improvements and additions to our information systems technologies. For the nine months ended September 29, 2007, capital expenditures were used primarily for the construction of 27 new stores and improvements of existing stores. Additionally,
we acquired $3.5 million of intangible assets during the nine months ended September 27, 2008. These included the $3.0 million acquisition of store leases, along with related customer lists, which included five out of twenty new stores added
this Fiscal year, as well as an asset purchase of $0.5 million which occurred in the second Fiscal quarter of 2008, which consisted primarily of a tradename.

Cash Provided by Financing Activities

Net cash provided by financing activities was $16.3 million for the nine months ended
September 27, 2008, as compared to net cash of $0.0 million for the nine months ended September 29, 2007. The $16.3 million increase in cash provided by financing activities for the nine months ended September 27, 2008 was due
primarily to incremental borrowing of $17.0 million from our revolving credit facility, as compared to the same period last year, primarily to fund capital expenditures (which included $3.5 million asset purchases) for our Fiscal 2008 store
openings. The incremental borrowing was offset in part by a dividend to our Parent company for $0.6 million.

2005 Second Priority Senior Secured
Floating Rate Notes

Commencing on February 15, 2006, interest on our Notes was set at a per annum rate equal to a three month
LIBOR plus 7.5%, which resets quarterly on February 15, May 15, August 15 and November 15 of each year. The combined weighted average interest rate from December 30, 2007 through September 27, 2008 was 10.69%
(11.95% after including the impact of hedging activities). 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.

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



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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. The Revolving Credit Facility has a maturity date of November 15, 2010.
The unused available line of credit at September 27, 2008 was $31.3 million.

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 30, 2007 through September 27, 2008 was 4.10%.

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.

We entered into an interest rate swap during December 2005 on a portion of our Notes, which qualifies for hedge accounting under Statement of Financial
Accounting Standards (SFAS) No. 133. The swaps fair market value of $2.3 million at December 29, 2007 and $2.6 million at September 27, 2008, is recorded in other long-term liabilities on the condensed consolidated
balance sheets. Of the decrease in market value of $0.3 million during Fiscal 2008, $0.2 million was recorded in accumulated other comprehensive loss, and $0.1 million was recorded in deferred tax assets.

Contractual Obligations and Commercial Commitments

As of September 27, 2008, our lease commitments and contractual obligations are as follows (in thousands):



|                         |  |       |         |                     |   |                                           |  |               |       |                      |   |                |  |   |        |  |   |       
|------------------------ |  | ----- | ------- | ------------------- | - | ----------------------------------------- |  | ------------- | ----- | -------------------- | - | -------------- |  | - | ------ |  | - | ------
|Fiscal year ending       |  | Total |         | OperatingLeases (1) |   | Capital LeaseObligation,IncludingInterest |  | Long-TermDebt |       | InterestPayments (2) |   | CreditFacility
|Remainder of Fiscal 2008 |  | $     | 19,855  |                     | $ | 14,545                                    |  | $             | 434   |                      | $ |               |  | $ | 4,876  |  | $ |      
|2009                     |  |       | 78,387  |                     |   | 57,540                                    |  |               | 1,341 |                      |   |               |  |   | 19,506 |  |   |      
|2010                     |  |       | 94,762  |                     |   | 56,915                                    |  |               | 1,341 |                      |   |               |  |   | 19,506 |  |   | 17,000
|2011                     |  |       | 74,485  |                     |   | 53,638                                    |  |               | 1,341 |                      |   |               |  |   | 19,506 |  |   |      
|2012                     |  |       | 234,919 |                     |   | 51,245                                    |  |               | 794   |                      |   | 165,000        |  |   | 17,880 |  |   |      
|Thereafter               |  |       | 143,443 |                     |   | 143,443                                   |  |               |      |                      |   |               |  |   |       |  |   |      
|                         |  |       |         |                     |   |                                           |  |               |       |                      |   |                |  |   |        |  |   |       
|                         |  | $     | 645,851 |                     | $ | 377,326                                   |  | $             | 5,251 |                      | $ | 165,000        |  | $ | 81,274 |  | $ | 17,000
|                         |  |       |         |                     |   |                                           |  |               |       |                      |   |                |  |   |        |  |   |       



|(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 the
first nine months of Fiscal of 2008. 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 16.2% of our minimum
lease obligations for the nine months ended September 27, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Interest payments are based upon the prevailing interest rates at September 27, 2008, net of projected activity arising from our hedging activities which cease in 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have an aggregate contingent liability of up to $2.1 million related to potential severance payments for five executives
as of September 27, 2008 pursuant to their respective employment agreements. We have an aggregate contingent liability of up to $1.6 million related to potential severance payments for eight employees as of September 27, 2008 following a
change in control pursuant to their respective employment agreements. These potential severance payments are not reflected in the table above.

Excluded from the above commitments is $2.7 million of long-term liabilities related to uncertain tax positions pursuant to FIN 48, due to the uncertainty of the time and nature of resolution.



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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.

Recent Accounting
Pronouncements

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133, (SFAS No. 161). SFAS No. 161 will require entities to provide enhanced disclosures for derivative activities and hedging activities with regards to the reasons
for employing derivative instruments, how they are accounted for, and how these instruments affect an entitys financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for fiscal years
beginning after November 15, 2008. The adoption of SFAS No. 161 will not have a material impact on our financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, (SFAS
No. 159). SFAS No. 159 permits entities to choose to measure and report selected financial assets and liabilities at fair value on an instrument-by-instrument basis, 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. The provisions of SFAS No. 159 were effective in the first quarter of fiscal year 2008. The adoption of SFAS
No. 159 did not have a material impact on our financial condition, results of operations or cash flows.

Effective December 30,
2007, we adopted certain provisions of SFAS No. 157, Fair Value Measurements, that apply to certain financial assets and liabilities. 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. SFAS
No. 157, as amended by FASB Staff Position 157-2 (FSP 157-2), requires that the remaining provisions, which apply to nonfinancial assets and nonfinancial liabilities, be made effective for financial statements issued for fiscal
years beginning after November 15, 2008, and interim periods within those fiscal years. We do not expect the adoption of the remaining provisions of SFAS No. 157 and FSP 157-2 to have a material impact on our financial condition, results
of operations or cash flows. The required disclosures are included in Note 11 to our condensed consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), SFAS No. 141(R) attempts to improve the relevance and comparability of the information included in companies` financial
reports regarding business combinations and their effects. The statement is effective for acquisitions occurring in fiscal years beginning on or after December 15, 2008, as well as for certain adjustments to income tax items relating to
acquisitions completed prior to the adoption date. Currently, we cannot determine the impact, if any, the adoption will have on our financial condition, results of operations or cash flows.



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

The Companys market risks relate primarily to changes in interest rates. 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 statements of
operations and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR would cause an increase to interest expense of approximately $0.4 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. In December 2005, we entered into an interest rate swap on a portion of our Notes, the fair market
value of which was $2.3 million at December 29, 2007 and $2.6 million at September 27, 2008, and is recorded in other long-term liabilities on the condensed consolidated balance sheets.



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##### Table of Contents

|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 September 27, 2008, 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 September 27, 2008 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) accumulating and communicating this
information 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 has been no changes in our internal control structure over financial reporting during the quarter ended September 27, 2008, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



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##### Table of Contents

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
|-------- | ------------

Along with the
risk factors presented in the update below, 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 28, 2008, for a more detailed explanation of the factors
affecting our business. Except for the below discussion, there have been no material changes from risk factors previously disclosed in our Form 10-K.

Our ability to continue to access credit on the terms previously obtained for the funding of our operations and capital projects may be limited due to the deterioration of the credit markets.

The global financial credit markets have been, and continue to be, volatile as a result of the current credit crisis which has caused a substantial
deterioration to the credit markets. The current conditions may continue to disrupt liquidity and as a result may impact our ability to obtain credit, or obtain it on terms similar to those previously experienced.

Due to this current economic disruption, we cannot be certain that funding for our capital needs will be available from our existing financial
institutions and the credit markets if needed, and if available, to the extent required, and on acceptable terms. However, under the terms of our existing indebtedness, our revolving credit facility, of which at September 27, 2008 we have
approximately $31.3 million available, matures in November 2010, and our Notes mature in November 2012. If we cannot obtain funding when needed, or on favorable terms, we may be unable to continue our current rate of growth and store expansion,
which may have an adverse effect on our revenues and results of operations.



|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 November 12, 2008.



VS HOLDINGS, INC.By:

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

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




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##### Table of Contents

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.



40