8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

September 9, 2005

Date of Report (Date of earliest event reported)

NBTY, INC.

(Exact name of Registrant as specified in its charter)

Delaware	001-31788	11-2228617
(State or other jurisdiction of Incorporation)	(Commission File No.)	(IRS Employer Identification Number)
90 Orville Drive Bohemia, New York 11716
(Address of principal executive offices, including zip code)
(631) 567-9500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 7.01.            REGULATION FD DISCLOSURE

In its press release dated September 9, 2005, NBTY, Inc. announced that it intends to offer $150 million in aggregate principal amount of Senior Subordinated Notes due 2015.  A copy of the press release is attached as Exhibit 99.1.  In connection with the proposed offering, the Company intends to disclose risk factor information (attached as Exhibit 99.2), information on the Company’s liquidity and capital resources (attached as Exhibit 99.3) and updated information on the Company’s business (attached as Exhibit 99.4).

ITEM 9.01.            FINANCIAL STATEMENTS AND EXHIBITS

(C)  Exhibits.

99.1Press release issued by NBTY, Inc., dated September 9, 2005.

99.2Risk factors.

99.3Liquidity and capital resources.

99.4Business.

This Form 8-K and the attached Exhibits are furnished to comply with Item 7.01 and Item 9.01 of Form 8-K.  Neither this Form 8-K nor the attached Exhibits are to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall this Form 8-K nor the attached Exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 (except as shall be expressly set forth by specific reference in such filing).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

NBTY, INC.
By:	/s/ Harvey Kamil
Name:	Harvey Kamil
Title:	President and Chief Financial Officer

Date:  September 9, 2005

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE
Contact:	Harvey Kamil	Carl Hymans
	NBTY, Inc.	G.S. Schwartz & Co.
	President & Chief Financial Officer	212-725-4500
	631-200-2020	carlh@schwartz.com

NBTY, INC. ANNOUNCES PLANS TO OFFER

$150 MILLION OF SENIOR SUBORDINATED NOTES

BOHEMIA, N.Y. – September 9, 2005 - NBTY, Inc. (NYSE:NTY) (www.NBTY.com), a leading global manufacturer and marketer of nutritional supplements, announced today that it intends, subject to market and other conditions, to offer $150 million in aggregate principal amount of Senior Subordinated Notes due 2015 (the “Notes”).  NBTY anticipates that the Notes will be unsecured senior subordinated obligations and will be guaranteed on an unsecured senior subordinated basis by certain of its domestic subsidiaries.  NBTY anticipates using the proceeds of the Notes plus cash on hand to repurchase all of its issued and outstanding 8 5/8% senior subordinated notes due 2007 pursuant to its previously announced pending tender offer or, to the extent not tendered, pursuant to the optional redemption provisions applicable to such notes.  This statement of intent shall not constitute a notice of redemption under the indenture governing the 8 5/8% senior subordinated notes, and there can be no assurance that such a notice will be given or that such notes will be redeemed by the Company.

The Notes will be sold to qualified institutional buyers under Rule 144A and outside the United States in compliance with Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).  The Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  This announcement shall not constitute an offer to sell or a solicitation of an offer to buy the Notes, nor shall there be any sales of the Notes in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.

ABOUT NBTY

NBTY is a leading vertically integrated manufacturer, marketer and distributor of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world.  Under a number of NBTY and third party brands, the Company offers over 19,000 products, including products marketed the Company’s  Nature’s Bountyâ, Vitamin Worldâ, Puritan’s Prideâ, Holland & Barrettâ, Rexallâ, Sundownâ, MET-Rx®, WORLDWIDE Sport Nutrition®, American Healthâ, GNC (UK)â, De Tuinen®, Le Naturisteä, SISU® and Solgar® brands.

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business.  These forward-looking statements can be identified by the use of terminology such as “subject to,” “believe,” “expects,” “plan,” “project,” “estimate,” “intend,” “may,” “will,” “should,” “can,” or “anticipates,” or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy.   Although all of these forward looking statements are believed to be reasonable, they are inherently uncertain.  Factors which may materially affect such forward-looking statements

include: (i) adverse publicity regarding nutritional supplements; (ii) slow or negative growth in the nutritional supplement industry; (iii) interruption of business or negative impact on sales and earnings due to acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; (iv) inability to retain customers of companies (or mailing lists) recently acquired; (v) increased competition; (vi) increased costs; (vii) loss or retirement of key members of management; (viii) increases in the cost of borrowings and/or unavailability of additional debt or equity capital; (ix) unavailability of, or inability to consummate, advantageous acquisitions in the future, including those that may be subject to bankruptcy approval or the inability of NBTY to integrate acquisitions into the mainstream of its business; (x) changes in general worldwide economic and political conditions in the markets in which NBTY may compete from time to time; (xi) the inability of NBTY to gain and/or hold market share of its wholesale and/or retail customers anywhere in the world; (xii) unavailability of electricity in certain geographical areas; (xiii) the inability of NBTY to obtain and/or renew insurance and/or the costs of the same; (xiv) exposure to and expense of defending and resolving, product liability claims and other litigation, including administrative and criminal proceedings; (xv) the ability of NBTY to successfully implement its business strategy; (xvi) the inability of NBTY to manage its retail, wholesale, manufacturing and other operations efficiently; (xvii) consumer acceptance of NBTY’s products; (xviii) the inability of NBTY to renew leases for its retail locations; (xix) the inability of NBTY’s retail stores to attain or maintain profitability; (xx) the absence of clinical trials for many of NBTY’s products; (xxi) sales and earnings volatility and/or trends for the Company and its market segments; (xxii) the efficacy of NBTY’s Internet and on-line sales and marketing strategies; (xxiii) fluctuations in foreign currencies, including the British Pound, the Euro and the Canadian dollar; (xxiv) import-export controls on sales to foreign countries; (xxv) the inability of NBTY to secure favorable new sites for, and delays in opening, new retail locations; (xxvi) introduction of and compliance with new federal, state, local or foreign legislation or regulation or adverse determinations by regulators anywhere in the world (including the banning of products) and more particularly proposed Good Manufacturing Practices in the United States, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe and Section 404 requirements of the Sarbanes-Oxley Act of 2002; (xxvii) the mix of NBTY’s products and the profit margins thereon; (xxviii) the availability and pricing of raw materials; (xxix) risk factors discussed in NBTY’s filings with the U.S. Securities and Exchange Commission; (xxx) adverse effects on NBTY as a result of increased gasoline prices and potentially reduced traffic flow to NBTY’s retail locations; (xxxi) adverse tax determinations; (xxxii) the loss of a significant customer of the Company; and (xxxiii) other factors beyond the Company’s control.

Since NBTY is not subject to the certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until its fiscal year ended September 30, 2005, NBTY cannot be certain that the measures taken to comply with Section 404 by the Company will be sufficient to meet the requirements thereof.  As required by Section 404 of the Sarbanes-Oxley Act of 2002, NBTY expects to complete the Section 404 certification process for its fiscal year ended September 30, 2005.

Readers are cautioned not to place undue reliance on forward-looking statements.  NBTYcannot guarantee future results, trends, events, levels of activity, performance or achievements.   NBTY does not undertake and specifically declines any obligation to update, republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

Consequently, such forward-looking statements should be regarded solely as NBTY’scurrent plans, estimates and beliefs.

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EX-99.2

Exhibit 99.2

Risk factors

Risks relating to our business

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.

We believe the nutritional supplement market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally, as well as products distributed specifically by us and by other companies. Consumer perception of our products can be significantly influenced by scientific research or findings, national media attention and other publicity regarding the consumption of nutritional supplements. There can be no assurance that future scientific research, findings or publicity will be favorable to the nutritional supplement market or any particular product, or consistent with earlier favorable research, findings or publicity. Future research reports, findings or publicity that are perceived as less favorable or that question such earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows. Because of our dependence upon consumer perceptions regarding the safety, efficacy and quality of nutritional supplements in general and our products specifically, adverse scientific research reports, findings or publicity, whether or not accurate, associated with illness or other adverse effects resulting from the consumption of nutritional supplements in general, our products or any similar products distributed by other companies, that questions the safety, efficacy or benefits of our or similar products or that claims that any such products are unsafe or ineffective, could have a material adverse effect on us, the demand for our products, and our business, results of operations, financial condition and cash flows. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.

Complying with new and existing government regulation, both in the U.S. and abroad, could increase our costs significantly and adversely affect our financial results.

The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by several U.S. federal agencies, including the Food and Drug Administration, or FDA, the Federal Trade Commission, or FTC, the Consumer Product Safety Commission, the Department of Agriculture and the Environmental Protection Agency, as well as various state, local and international laws and agencies of the localities in which our products are sold, including the Food Standards Agency and the Department of Health in the United Kingdom and similar regulators in Ireland and the Netherlands. Government regulations may prevent or delay the introduction or require the reformulation of our products. Some agencies, such as the FDA, could require us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products, or otherwise disrupt the marketing of our products. Any such government actions would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, any of which could be material. Any such government actions could also lead to liability, substantial costs and reduced growth prospects. Moreover, there can be no assurance that new laws or regulations imposing more stringent regulatory requirements on the dietary supplement industry will not be enacted or issued.

The FTC regulates, among other things, sales promotions for dietary supplement products, including promotional offers of savings compared to “regular” prices. The National Advertising

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Division, or NAD, of the Council of Better Business Bureaus oversees an industry-sponsored self-regulatory system that permits competitors to resolve disputes over advertising claims, including promotions for savings off of regular prices. The NAD has no enforcement authority of its own, but may refer promotions that the NAD views as violating FTC guides or rules to the FTC for further action. On April 6, 2005, we received a letter from the NAD notifying us that the NAD was inquiring about certain product promotions as the result of a competitor’s challenge. We participated fully in the NAD inquiry, and the NAD published its decision on August 25, 2005. We do not anticipate that this decision will result in significant changes to our product promotions. If significant changes are required at some time in the future, these changes could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We are currently subject to FTC consent decrees and a U.S. Postal Service consent order, prohibiting certain advertising claims for certain of our products. Violations of these orders could result in substantial monetary penalties, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. Such developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. Any such developments could increase our costs significantly. For example, legislation was pending in Congress in 2004 to impose substantial new regulatory requirements for dietary supplements including adverse event reporting, postmarket surveillance requirements, FDA reviews of dietary supplement ingredients, safety testing and records inspection, and key members of Congress and the dietary supplement industry indicated that they reached an agreement to support legislation requiring adverse event reporting. Legislation has been introduced in 2005 to impose a risk/benefit standard for assessing the safety of dietary supplements and to require manufacturers who sell dietary supplements containing stimulants on military installations to report serious adverse events for the products to the FDA. If enacted, such legislation would raise our costs and negatively impact our business. In addition, we expect that the FDA soon will issue final rules on Good Manufacturing Practice creating new requirements for manufacturing, packaging, or holding dietary ingredients and dietary supplements, which will apply to the products we manufacture. We may not be able to comply with the new rules without incurring additional expenses, which could be significant. See “Business—Government regulation” for additional information.

In Europe, the enactment of legislation that could significantly impact the formulation and marketing of our products is anticipated. For example, in accordance with the Nutritional Supplements Directive, maximum safe levels for vitamin and mineral supplements are likely to be introduced shortly. European legislation regulating food supplements other than vitamins and minerals is also expected to be introduced by 2007. The introduction of these anticipated legislations could require us to reformulate our existing products to meet the new standards and, in some cases, may lead to some products being discontinued.

It is also anticipated that the Nutrition and Health Claims Regulation will be implemented in 2006. Once enacted, this legislation will harmonize the types of claims that can be made for

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foodstuffs (including supplements) in Europe. Although this Regulation will assist in making the European market more accessible, it will also introduce a number of prohibitions which will impact the claims that can be made for our products. In particular, certain claims will be prohibited unless certain conditions are met and, in certain circumstances, prior approval of the claims will be required. It is also anticipated that the legislation will prohibit certain claims for general well-being, behavioral functions and weight-loss.

In addition, an EU Directive governing product safety came into force at the beginning of 2004 and has been or is about to be implemented in the U.K., Ireland and the Netherlands. This legislation requires manufacturers to notify regulators as soon as they know that a product is unsafe and gives regulators in each European member state the power to order a product recall and, if necessary, instigate the product recall themselves. As a result, the number of product recalls in Europe has increased substantially and, as a result, the likelihood that we will be subject to a product recall in Europe has increased. A product recall of any of our products in Europe could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We may be exposed to legal proceedings instigated by regulators abroad which could increase our costs and adversely affect our reputation, turnover and operating income.

In Europe, non-compliance with relevant legislation can result in regulators bringing administrative or, in some cases, criminal proceedings. In the U.K., it is common for regulators to prosecute retailers and manufacturers for non-compliance with legislation governing foodstuffs and medicines. Failures by us or our subsidiaries to comply with applicable legislation could occur from time to time and prosecution for any such violations could have a material adverse effect on our business, results of operations, financial condition and cash flows. See “Business—Government regulation.”

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

As a retailer, marketer and manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and in most cases are not necessarily subject to pre-market regulatory approval in the U.S. Our products could contain contaminated substances, and some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, some of the products we sell are produced by third-party manufacturers. As a marketer of products manufactured by third parties, we may also be liable for various product liability claims for products we do not manufacture. We have been in the past, and may in the future, be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. For example, we have been named in certain pending cases involving the sale of certain nutrition bars, products that contain certain Prohormone ingredients and our sales of products containing ephedra. See “Business—Legal proceedings.” A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could have a

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material adverse effect on our business, results of operations, financial condition and cash flows.

Insurance coverage, even where available, may not be sufficient to cover losses we may incur.

Our business exposes us to the risk of liabilities arising out of our operations. For example, we may be liable for claims brought by users of our products or by employees, customers or other third parties for personal injury or property damage occurring in the course of our operations. We seek to minimize these risks through various insurance contracts from third-party insurance carriers. However, our insurance coverage is subject to large individual claim deductibles, individual claim and aggregate policy limits, and other terms and conditions. We retain an insurance risk for the deductible portion of each claim and for any gaps in insurance coverage. We do not view insurance, by itself, as a material mitigant to these business risks.

Our estimate of retained-insurance liabilities is subject to change as new events or circumstances develop that might materially impact the ultimate cost to settle these losses. We cannot assure you that our insurance will be sufficient to cover our losses. Any losses that are not completely covered by our insurance could have a material adverse effect on our business, results of operations, financial condition and cash flows.

The insurance industry has become more selective in offering some types of coverage and we may not be able to obtain insurance coverage in the future.

The insurance industry has become more selective in offering some types of insurance, such as product liability, product recall, property and directors and officers’ liability insurance. We were able to obtain these insurance coverages through July 1, 2006 and our current insurance program is consistent with both our past level of coverage and our risk management policies. However, we cannot assure you that we will be able to obtain comparable insurance coverage at favorable terms, or at all, in the future.

If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

We may be exposed to product recalls and adverse public relations if our products are alleged to cause injury or illness or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls may also lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a have a material adverse effect on our business, results of operations, financial condition and cash flows. See “—Complying with new and existing government regulation, both in the U.S. and abroad, could increase our costs significantly and adversely affect our financial results.”

Our operations in international markets expose us to certain risks.

We may experience difficulty entering new international markets due to greater regulatory barriers, the necessity of adapting to new regulatory systems and problems related to entering new markets with different cultural bases and political systems. As of June 30, 2005, we had 609 retail stores outside of the U.S. as well as significant wholesale sales outside of the U.S. For the nine months ended June 30, 2005, approximately 34% of our net sales were generated in

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international markets. In addition, approximately 50% of Solgar’s net sales for the twelve months ended December 31, 2004 were generated outside of the U.S. These international operations expose us to certain risks, including, among other things:

•changes in or interpretations of foreign regulations that may limit our ability to sell certain products or repatriate profits to the U.S.;

•exposure to currency fluctuations;

•potential imposition of trade or foreign exchange restrictions or increased tariffs;

•difficulty in collecting international accounts receivable;

•potentially longer payment cycles;

•difficulties in enforcement of contractual obligations and intellectual property rights;

•national and regional labor strikes;

•increased costs in maintaining international manufacturing and marketing efforts;

•geographic time zone, language and cultural differences between personnel in different areas of the world; and

•political instability.

As we continue to expand our international operations, these and other risks associated with international operations are likely to increase. See “Business—Our strategy” and “Business—Government regulation.”

We may not be successful in our future acquisition endeavors, if any, which may have an adverse effect on our business and results of operations.

We have historically engaged in substantial acquisition activity. We may be unable to identify suitable targets, opportunistic or otherwise, for acquisitions in the future. If we identify a suitable acquisition candidate, our ability to successfully implement the acquisitions would depend on a variety of factors including our ability to obtain financing on acceptable terms and to comply with the restrictions contained in our debt agreements. If we need to obtain our lenders’ consent to an acquisition, they may condition their consent on our compliance with additional restrictive covenants that may limit our operating flexibility. Acquisitions involve risks, including those associated with integrating the operations, financial reporting, disparate technologies and personnel of acquired companies; managing geographically dispersed operations; the diversion of management’s attention from other business concerns; the inherent risks in entering markets or lines of business in which we have either limited or no direct experience; unknown risks; and the potential loss of key employees, customers and strategic partners of acquired companies. We may not successfully integrate any businesses or technologies we may acquire in the future and may not achieve anticipated operating efficiencies and effective coordination of sales and marketing and financial reporting benefits as well as revenue and cost benefits. Acquisitions may be expensive, time consuming and may strain our resources. Acquisitions may negatively impact our results of operations as a result of, among other things, the incurrence of debt.

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We are dependent on our executive officers and other key personnel, and we may not be able to pursue our current business strategy effectively if we lose them.

Our continued success will largely depend on the efforts and abilities of our executive officers and certain other key employees. Our ability to manage our operations and meet our business objectives could be adversely affected if, for any reason, such officers or employees do not remain with us.

Two of our customers account for a substantial portion of our revenue, and the loss of one or both of these customers would have a material adverse effect on our results of operations and reduce our ability to service our debt obligations.

Two of the customers of our Wholesale/US Nutrition segment accounted for, individually, more than 10% of that segment’s sales in the nine months ended June 30, 2005. One of those customers accounted for 11% of our Wholesale/US Nutrition segment’s total gross accounts receivable as of June 30, 2005, and the other customer accounted for 10% of our Wholesale/US Nutrition segment’s total gross accounts receivable as of June 30, 2005. We do not have long-term contracts with either customer. One of these customers is primarily a supplier to the other customer; therefore, changes in our business relationship with either customer would likely result in the loss of most of the net sales to both customers. While no one customer represented individually more than 10% of NBTY’s consolidated net sales, the loss of either one of these customers would have a material adverse effect on our Wholesale/US Nutrition segment if we were unable to replace such customer(s). In addition, our results of operations and ability to service our debt obligations would be negatively impacted to the extent that one or both of the customers are unable to make payments or do not make timely payments on outstanding accounts receivables.

We are dependent on certain third-party suppliers.

We purchase from third-party suppliers certain important ingredients and raw materials. The principal raw materials required in our operations are vitamins, minerals, herbs, gelcaps and bottling materials. We purchase the majority of our vitamins, minerals and herbs from bulk manufacturers and distributors in the U.S., Japan, China and Europe. Although raw materials are available from numerous sources, an unexpected interruption of supply or material increases in the price of raw materials, for any reason, such as regulatory requirements, import restrictions, loss of certifications, power interruptions, fires, hurricanes, war or other events could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We rely on our manufacturing operations to produce the vast majority of the nutritional supplements that we sell, and disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our results of operations.

We manufacture the vast majority of the nutritional supplements that we sell. We currently have manufacturing facilities in New York, California, Florida, New Jersey, Pennsylvania, Georgia and Canada. All of our domestic manufacturing operations are subject to Good Manufacturing Practice regulations, or GMPs, promulgated by the FDA and other applicable regulatory standards. Any significant disruption in our operations at any of these facilities, including any disruption due to any regulatory requirement, could affect our ability to respond

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quickly to changes in consumer demand and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We operate in a highly competitive industry, and our failure to compete effectively could adversely affect our market share, financial condition and growth prospects.

The vitamin and nutritional supplements industry is a large and growing industry, which is highly fragmented in terms of both geographical market coverage and product categories. The market for vitamins and other nutritional supplements is highly competitive in all of our channels of distribution. We compete with companies which may have broader product lines and/or larger sales volumes than us and our products also compete with nationally advertised brand name products. Most of the national brand companies have resources greater than our resources. Numerous companies compete with us in the development, manufacture and marketing of vitamins and nutritional supplements worldwide. In addition, our North America and European Retail stores compete with specialty vitamin stores, health food stores and other retail stores worldwide. With respect to mail order sales, we compete with a large number of smaller, usually less geographically diverse, mail order and Internet companies, some of which manufacture their own products and some of which sell products manufactured by others. The market is highly sensitive to the introduction of new products which may rapidly capture a significant share of the market. Increased competition from companies that distribute through the wholesale channel could have a material adverse effect on our business, results of operations, financial condition and cash flows as these competitors may have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than ours. See “Business—Competition; customers.”

We may not be able to compete effectively in one or all of our markets, and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could have a material adverse effect on our market share, business, results of operations, financial condition, cash flows and growth prospects.

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

The nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion of us as a source for the latest products, which in turn could harm our customer relationship and cause decreases in our net sales. The success of our new product offerings depends upon a number of factors, including our ability to:

•accurately anticipate customer needs;

•innovate and develop new products;

•successfully commercialize new products in a timely manner;

•price our products competitively;

•manufacture and deliver our products in sufficient volumes and in a timely manner; and

•differentiate our product offerings from those of our competitors.

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If we do not introduce new products or make enhancements to meet the changing need of our customers in a timely manner, some of our products could be rendered obsolete, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We are subject to war, sabotage and terrorism risk.

War, sabotage and terrorist attacks or any similar risk may affect our operations in unpredictable ways, including disruptions of the shopping and commercial behavior of our customers, changes in the insurance markets and disruptions of fuel supplies and markets, particularly oil. War and risk of war also have an adverse effect on the economy. Instability in the financial markets as a result of war, sabotage or terrorism could adversely affect our ability to raise capital, as well as adversely affect the retail and vitamin and dietary supplement industries and restrict their future growth.

We may be adversely affected by increased utility and fuel costs.

Increasing fuel costs may adversely affect our results of operations in that consumer traffic to our retail locations may be reduced and the costs of our sales may increase as we incur fuel costs in connection with our manufacturing operations and the transportation of goods from our warehouse and distribution facilities to stores. Also, high oil costs can affect the cost of all raw materials and components and the competitive environment in which we operate may limit our ability to recover higher costs resulting from rising fuel prices.

Our profits may be negatively affected by currency exchange rate fluctuations.

Our assets, earnings and cash flows are influenced by currency fluctuations due to the geographic diversity of our sales and the countries in which we operate, which may have a significant impact on our financial results. For the nine months ended June 30, 2005, 34% of our sales were denominated in a currency other than the U.S. Dollar, and as of June 30, 2005, 27% of our assets and 11% of our total liabilities were denominated in a currency other than the U.S. Dollar. As of June 30, 2005, we had not entered into any hedging arrangements to mitigate our exposure to foreign currency exchange rate risk.

Our inability to protect our intellectual property rights could adversely affect our business.

We own trademarks registered with the U.S. Patent and Trademark Office and many foreign jurisdictions for our Nature’s Bounty®, Vitamin World®, Puritan’s Pride®, Rexall®, Sundown®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health® trademarks, among others, and with the appropriate U.K., Dutch and Canadian authorities for our Holland & Barrett, GNC (UK), Nature’s Way, De Tuinen, Le Naturiste and SISU trademarks, among others, and have rights to use other names essential to our business. Our policy is to pursue registrations for all trademarks associated with our key products. U.S. registered trademarks have a perpetual life, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement. Our products are generally not subject to patent protection. There can be no assurance that, to the extent we do not have patents or trademarks on our products, another company will not replicate one or more of our products. Further, there can

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be no assurance that in those foreign jurisdictions in which we conduct business the protection available to the us will be as extensive as the protection available to us in the U.S. See “Business—Trademarks.”

Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products, which could adversely affect our revenues and market share.

We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products. Claims of intellectual property infringement also may require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights could be costly and would divert the attention of management and key personnel, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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EX-99.3

Exhibit 99.3

Liquidity and capital resources

Our primary sources of liquidity and capital resources are cash generated from operations and a revolving credit facility maintained by us under our credit agreement. On August 1, 2005, in connection with our acquisition of Solgar, we amended and restated our credit agreement by adding a new term loan A of $120,000 and increasing our existing revolving credit facility from $100,000 to $125,000. Amendments were also made to certain covenants, including elimination of the minimum fixed charge coverage ratio covenant and increasing the annual capital expenditures limitation from $50,000 to $75,000. Our principal uses of cash have been to finance working capital, facility expansions, acquisitions, capital expenditures and debt service requirements. We anticipate these uses will continue to be our principal uses of cash in the future.

The following table sets forth, for the periods indicated, our net cash flows provided by (used in) operating, investing and financing activities, our period-end cash and cash equivalents and other operating measures:

	Fiscal years ended September 30,									Nine months ended June 30,
	2002			2003			2004			2004			2005
Cash flow provided by operating activities	$	105,087		$	111,532		$	119,936		$	137,407		$	64,988
Cash flow used in investing activities	$	(31,776	)	$	(323,285	)	$	(37,477	)	$	(26,837	)	$	(42,845	)
Cash flow (used in) provided by financing activities	$	(83,454	)	$	233,435		$	(115,719	)	$	(116,256	)	$	(12,779	)
Cash and cash equivalents at end of period	$	26,229		$	49,349		$	21,751		$	50,185		$	30,155
Days sales outstanding	46			49			42			61			62
Inventory turnover	2.23		x	2.25		x	2.39		x	2.41		x	2.01		x

As of June 30, 2005, working capital was $433,909, compared with $359,847 as of September 30, 2004, an increase of $74,062. The increase in working capital of $74,062 was primarily due to increases in current assets including cash and inventories, offset partially by a decrease in accounts receivable, prepaid and other current assets and an increase in accrued expenses. Accounts receivable decreased due to increased collections. The annualized number of average days’ sales outstanding (on Wholesale/US Nutrition net sales) at June 30, 2005, was 62 days, compared with 61 days at June 30, 2004. Inventory levels have increased to ensure supply of scarce ingredients for our joint care products, including Osteo Bi-Flex®, Flex-a-Min® and Knox NutraJoint®, as well as to ensure adequate raw material supplies for other popular items in short supply. The annualized inventory turnover rate was approximately 2.01 times during the nine months ended June 30, 2005 compared with 2.41 times during the prior comparable period primarily due to the increased inventory levels. Prepaid and other current assets decreased primarily due to the normal amortization of prepaid insurance costs (the annual policy begins in July) and the sale of a building previously held for sale.

The number of average days’ sales outstanding (on Wholesale/US Nutrition net sales) at September 30, 2004, was 42 days, compared with 49 days at September 30, 2003. The inventory turnover rate was approximately 2.39 times during fiscal 2004 compared with 2.25 times during fiscal 2003. Inventory levels have increased as a result of modifications to our product procurement process. As we continue to grow, we need to maintain larger quantities of product through verbal commitments with our vendors. Generally, these verbal arrangements with our vendors are terminable by either party without notice or upon short notice. Inventory levels were increased to prepare for expected increases in orders as a result of anticipated consumer demand and ensure quick delivery of product to our customers. Other current assets increased as a result of the reclassification from property, plant and equipment of the net book value of $10,508 for the former Rexall corporate headquarters held for sale, as well as an increase in insurance premiums which resulted in an increased prepaid insurance balance at September 30, 2004 as compared to the prior comparable period.

Cash flows.  We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.

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Cash and cash equivalents.  Cash and cash equivalents totaled $30,155 and $21,751 at June 30, 2005 and September 30, 2004, respectively. At June 30, 2005, $30,150 of our cash and cash equivalents were held by our foreign subsidiaries. These funds are subject to U.S. income taxation on repatriation to the U.S. We generated cash from operating activities of $64,988 and $137,407 during the nine months ended June 30, 2005 and 2004, respectively. The overall decrease in cash provided by operating activities during the nine months ended June 30, 2005 as compared to the prior comparable period was mainly attributable to decreased net income and non-cash charges, as well as changes in operating assets and liabilities discussed above, partially offset by asset impairment charges.

Cash and cash equivalents totaled $21,751 and $49,349 at September 30, 2004 and 2003, respectively. At September 30, 2004, approximately $15,491 of our cash and cash equivalents were held by our foreign subsidiaries and are subject to U.S. income taxation on repatriation to the U.S. We generated cash from operating activities of $119,936, $111,532 and $105,087 in fiscal 2004, 2003 and 2002, respectively. The overall increase in cash from operating activities during fiscal 2004 was mainly attributable to increased net income and non-cash charges, partially offset by changes in other operating assets and liabilities.

Cash used in investing activities.  Cash used in investing activities was $42,845 and $26,837 during the nine months ended June 30, 2005 and 2004, respectively. During the nine months ended June 30, 2005, cash flows used in investing activities consisted primarily of the purchase of property, plant and equipment ($49,786, of which $18,609 was attributable to a new distribution facility in Hazelton, Pennsylvania) and cash paid for acquisitions (Le Naturiste and SISU), net of cash acquired ($13,434), offset by proceeds from the sale of property, plant and equipment held for sale ($9,950) mainly due to the sale of the Rexall building, proceeds from the sale of certain business assets of FSC, a Manchester, U.K. based wholesale operation which sold products to health food stores and pharmacies ($5,766), cash settlement received from the GNC (UK) purchase price adjustment ($4,558), proceeds from the sale of property, plant and equipment ($71) and proceeds from the sale of a trademark ($30). During the nine months ended June 30, 2004, cash flows used in investing activities consisted primarily of the purchase of property, plant and equipment ($32,087), offset by proceeds from the sale of investment in bonds ($4,158) and proceeds from sale of property, plant and equipment ($1,092).

Cash used in investing activities was $37,477, $323,285, and $31,776 in fiscal 2004, 2003 and 2002, respectively. Fiscal 2004 cash used in investing activities consisted primarily of purchases of property, plant and equipment ($42,700), partially offset by proceeds from the sale of property, plant and equipment ($1,065) and proceeds from the sale of the high yield, less than investment grade corporate bonds ($4,158).

Fiscal 2003 cash used in investing activities consisted primarily of net cash paid for the Rexall, De Tuinen, FSC and GNC (UK) businesses ($289,676), as well as the purchase of property, plant and equipment ($37,510), partially offset by proceeds from the sale of property, plant and equipment ($1,498), and cash received that was previously held in escrow from the fiscal 2001 acquisitions of Global Health Sciences ($1,850) and NatureSmart ($553).

Fiscal 2002 cash used in investing activities consisted primarily of the purchase of property, plant and equipment ($21,489) and cash paid for asset acquisitions ($7,702), partially offset by cash received that was previously held in escrow for the acquisition of Global Health Sciences ($4,600), and proceeds from the sale of property, plant and equipment ($1,057). In addition, we made a strategic investment in high yield, less than investment grade corporate bonds ($8,242).

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Net cash (used in) provided by financing activities.  Net cash used in financing activities was $12,779 and $116,256 during the nine months ended June 30, 2005 and 2004, respectively. For the nine months ended June 30, 2005, cash flows used in financing activities related to principal payments under long-term debt agreements ($18,810) and purchase of treasury stock ($176), offset by proceeds from borrowings under long-term debt agreements ($6,000) and the exercise of stock options ($207). Cash used in financing activities during the nine months ended June 30, 2004 related to principal payments under long-term debt agreements ($116,563) and payments for financing fees ($500), offset by proceeds from the exercise of stock options ($807).

Net cash (used in) provided by financing activities was ($115,719), $233,435, and ($83,454) in fiscal 2004, 2003 and 2002, respectively. Fiscal 2004 net cash flows used in financing activities included principal payments under long-term debt agreements ($117,100) and payments related to financing fees ($500), partially offset by proceeds from the exercise of stock options ($1,881).

Fiscal 2003 net cash flows provided by financing activities included proceeds from borrowing under long-term debt agreements ($275,000) and proceeds from the exercise of stock options ($1,146), partially offset by principal payments under long-term debt agreements ($35,211), and payments related to financing fees ($7,500).

Fiscal 2002 net cash flows used in financing activities included principal payments under long-term debt agreements ($85,353), partially offset by proceeds from the exercise of stock options ($1,899).

We believe our sources of cash will be sufficient to fund our operations and meet our cash requirements to satisfy our working capital needs, capital expenditure needs, outstanding commitments, and other liquidity requirements associated with our existing operations over the next 12 months. We anticipate that our total capital expenditures for fiscal 2005 and 2006 will be approximately $75,000. Our ability to fund these requirements and comply with financial covenants under our debt agreements will depend on our future operations, performance and cash flow and is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. In addition, as part of our strategy, we may pursue acquisitions and investments that are complementary to our business. Any material future acquisitions or investments will likely require additional capital and therefore, we cannot predict or assure that additional funds from existing sources will be sufficient for such future events.

EBITDA.  EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Since EBITDA is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles or GAAP, it should not be considered in isolation of, or as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP, such as operating income, net income and cash flows from operating activities. In addition, our definition of EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

We use EBITDA as a supplementary non-GAAP liquidity measure to allow us to evaluate each of our operating segment’s cash-generating ability to fund income tax payments, corporate overhead, capital expenditures and increases in working capital. EBITDA is also used by us to

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allocate resources for growth among our segments, to evaluate our ability to service our debt and to raise capital for growth opportunities, including acquisitions. Under our credit arrangements, a number of covenants must be met, including, but not limited to, a minimum consolidated interest coverage ratio and a maximum leverage ratio. EBITDA is a factor utilized in calculating the ratios mentioned. The specific covenants and related definitions can be found in our credit agreement, which has been previously filed with the Securities and Exchange Commission. Covenants contained in our credit agreement are based on what we refer to herein as “EBITDA.” In addition, we use EBITDA as a supplemental non-GAAP liquidity measure in financial presentations to our board of directors, shareholders, various banks participating in our credit agreement, note holders and bond rating agencies, among others, to assist them in their evaluation of our cash flow. We use EBITDA in conjunction with traditional GAAP liquidity measures as part of our overall assessment and therefore do not place undue reliance on EBITDA as our only measure of cash flow. We believe EBITDA is useful for both us and investors as it is a commonly used analytical measurement for assessing a company’s cash flow ability to service and/or incur additional indebtedness, by excluding the impact of certain non-cash items such as depreciation and amortization. EBITDA has historically been used by our lenders to measure compliance with certain financial debt covenants, and we believe that EBITDA provides a meaningful measure of liquidity and our ability to service our long-term debt and other fixed obligations. We believe that EBITDA is specifically relevant to us due to our leveraged position as well as the common use of EBITDA as a liquidity measure within our industries by lenders, investors and others in the financial community. We have included EBITDA as a supplemental liquidity measure, which should be evaluated by investors in conjunction with the traditional GAAP liquidity measures discussed earlier in this Liquidity and Capital Resources section for a complete evaluation of our cash flow.

The following table presents a reconciliation from net cash provided by operating activities, which is the most directly comparable GAAP liquidity measure, to EBITDA:

	Fiscal years ended September 30,									Nine months ended June 30,
(Dollars in thousands)	2002			2003			2004			2004			2005
Net cash provided by operating activities	$	105,087		$	111,532		$	119,936		$	137,407		$	64,988
Interest expense	18,499			17,384			24,663			19,132			17,237
Income tax provision	42,916			33,412			57,156			44,725			37,860
Changes in working capital and other liabilities	37,275			28,386			63,176			7,205			58,548
Other	(4,379		)	(11,449		)	(9,583		)	(6,960		)	(12,534		)(1)
EBITDA	$	199,398		$	179,265		$	255,348		$	201,509		$	166,099	(1)

(1)           Asset impairment charges of $10,989 are included as a deduction to EBITDA.

We also use EBITDA as a supplementary non-GAAP operating performance measure to assist with the overall evaluation of our Company and the evaluation of our segments’ operating performance. EBITDA has certain material limitations as follows:

•It does not include interest expense. Because we borrowed money to finance our operations, interest expense is a necessary and ongoing part of our costs and has assisted in generating revenue. Therefore, any measure that excludes interest has material limitations.

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•It does not include taxes. Because the payment of taxes is a necessary and ongoing part of operations, any measure that excludes taxes has material limitations.

•It does not include depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of costs and ability to generate revenue. Therefore, any measure that excludes depreciation and amortization expense has material limitations.

•It does not include changes in working capital or other liabilities and, therefore, has material limitations as a measure of cash flow.

We believe the presentation of EBITDA is relevant and useful because EBITDA is a measurement industry analysts utilize when evaluating our Company and our segments’ operating performance. We provide this non-GAAP measurement as a way to help investors understand our core segment operating performance, to enhance comparisons of our Company and our segments’ core operating performance from period to period and to allow comparisons of our Company and our segments’ operating performance to that of our competitors. Since we have historically reported non-GAAP segment results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in financial reporting. Additionally, we use EBITDA for purposes of reviewing the results of operations for planning and forecasting certain segment operations in future periods, as well as providing a supplemental measure used by our chief operating decision maker to evaluate the ongoing performance of our segments and reporting units. EBITDA does not represent cash flow from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered an alternative to net income under GAAP for purposes of evaluating the results of operations.

An investor or potential investor may find any one or all of these items important in evaluating our performance, results of operations, financial position and liquidity. We compensate for the limitations of using non-GAAP financial measures by using them only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business.

Reconciliation of GAAP Measures to Non-GAAP Measures

	Nine months ended June 30, 2005
	Pretax income (loss)			Depreciation and amortization		Interest		EBITDA
Wholesale/US Nutrition	$	57,310		$	7,441	$	—	$	64,751
North American Retail/Vitamin World	(22,334		)	5,249		—		(17,085		)(a)
European Retail/Holland & Barrett/GNC (UK)	118,980			10,616		—		129,596
Direct Response/Puritan’s Pride	41,522			3,826		—		45,348
Segment Results	195,478			27,132		—		222,610
Corporate	(90,892		)	17,144		17,237		(56,511		)
Total	$	104,586		$	44,276	$	17,237	$	166,099	(a)

(a)           The asset impairment charges of $10,989 are included as a deduction to EBITDA.

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Reconciliation of GAAP Measures to Non-GAAP Measures

	Nine months ended June 30, 2004
	Pretax income (loss)			Depreciation and amortization		Interest		EBITDA
Wholesale/US Nutrition	$	97,927		$	7,935	$	—	$	105,862
North American Retail/Vitamin World	243			8,509		—		8,752
European Retail/Holland & Barrett/GNC (UK)	84,229			9,881		—		94,110
Direct Response/Puritan’s Pride	48,980			4,102		—		53,082
Segment Results	231,379			30,427		—		261,806
Corporate	(95,850		)	16,421		19,132		(60,297		)
Total	$	135,529		$	46,848	$	19,132	$	201,509

For the fiscal year ended September 30, 2004, our EBITDA was $255,348 compared with $179,265 for the prior comparable period, an increase of $76,083. EBITDA was calculated as follows:

Reconciliation of GAAP Measures to Non-GAAP Measures

	Fiscal year ended September 30, 2004
	Pretax income (loss)			Depreciation and amortization		Interest		EBITDA
Wholesale/US Nutrition	$	112,224		$	10,474	$	—	$	122,698
North American Retail/Vitamin World	(120		)	10,848				10,728
European Retail/Holland & Barrett/GNC (UK)	120,323			12,370				132,693
Direct Response/Puritan’s Pride	65,265			5,403				70,668
Segment Results	297,692			39,095				336,787
Corporate	(128,687		)	22,585		24,663		(81,439		)
Total	$	169,005		$	61,680	$	24,663	$	255,348

Reconciliation of GAAP Measures to Non-GAAP Measures

	Fiscal year ended September 30, 2003
	Pretax income (loss)			Depreciation and amortization		Interest		EBITDA
Wholesale/US Nutrition	$	76,933		$	2,184	$	—	$	79,117
North American Retail/Vitamin World	(1,643		)	12,733				11,090
European Retail/Holland & Barrett/GNC (UK)	83,345			9,872				93,217
Direct Response/Puritan’s Pride	62,184			5,779				67,963
Segment Results	220,819			30,568				251,387
Corporate	(105,822		)	16,316		17,384		(72,122		)
Total	$	114,997		$	46,884	$	17,384	$	179,265

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Debt Agreements.  At June 30, 2005, we maintained senior secured credit facilities under our credit agreement consisting of a $100,000 revolving credit facility, which had borrowings outstanding of $6,000, and a term loan C, which had borrowings outstanding of $138,668. The revolving credit facility and term loan C facility mature on the earlier of (i) July 24, 2008 for the revolving credit facility and December 19, 2009 for term loan C; or (ii) March 15, 2007 if our 8 ⁵¤₈% senior subordinated notes due September 15, 2007 are still outstanding. Virtually all of our assets are collateralized under our credit agreement. Under our credit agreement, we are obligated to maintain various financial ratios and covenants that are typical for such facilities.

On August 1, 2005, in connection with our acquisition of Solgar, we amended and restated our credit agreement by adding a new term loan A of $120,000 and increasing our revolving credit facility from $100,000 to $125,000. Amendments were also made to certain covenants, including elimination of the minimum fixed charge coverage ratio covenant and increasing the annual capital expenditures limitation from $50,000 to $75,000. Our term loan A facility matures on the earlier of (i) August 1, 2010 or (ii) the earliest date of maturity of any indebtedness that refinances the 8 ⁵¤₈% senior subordinated notes due September 15, 2007.

Interest rates charged on borrowings under our credit agreement can vary depending on the interest rate option utilized. Options for the rate can either be the Alternate Base Rate or LIBOR plus applicable margin. At June 30, 2005, the annual borrowing rate for term loan C approximated 5.3125% and the annual borrowing rate for the revolving credit facility approximated 5.0%. As of August 1, 2005, the annual borrowing rate for our term loan A was 5.25%. We are required to pay a commitment fee, which varies between .25% and ..50% per annum, depending on our ratio of debt to EBITDA, on any unused portion of the revolving credit facility. We are required to make quarterly principal installments under term loan C of approximately $353. The term loan C also requires each of the last four quarterly principal installments to be payments of approximately $33,608 beginning September 30, 2008. We are required to make quarterly principal installments under the term loan A of approximately $4,500, beginning September 30, 2006. The term loan A also requires each of the last four quarterly principal installments to be payments of approximately $16,500 beginning September 30, 2009. The current principal portion of term loan C at June 30, 2005 was $1,411. Utilizing our current borrowing rate of 5.3125% at June 30, 2005, the estimated interest to be paid over the remaining life of term loan C approximates $26,639. Of such amount, interest of approximately $7,441 is expected to be paid within the next twelve months. Using the borrowing rate of 5.25% at August 1, 2005, the estimated interest to be paid over the life of the term loan A approximates $23,224. Of such amount, approximately $6,281 is expected to be paid over the twelve-months ended June 30, 2006. Since the interest rate on each of the term loan C and term loan A debt is variable, the expected interest to be paid over the term of these loans is subject to revision as interest rates change. The interest rate charged for the term loan C is reset quarterly and is equal to the three-month LIBOR rate plus 2%. The interest rate charged for the term loan A is reset quarterly and equal to the three-month LIBOR rate plus a margin based on a pricing grid, which varies between 1.25% and 1.75%.

In 1997, we issued $150,000 of 8 ⁵/₈% senior subordinated notes due in 2007. These notes are unsecured and subordinated in right of payment to all of our existing and future indebtedness, including the credit agreement. Interest payments relating to such debt approximates $12,938 per annum. Pursuant to our tender offer, we intend to purchase any or all outstanding 8 ⁵/₈%

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senior subordinated notes due in 2007 at 100% of their principal amount plus accrued and unpaid interest. On or after the closing of the tender offer, we intend to exercise our right, pursuant to the terms of the indenture governing the 8 ⁵/₈% senior subordinated notes, to redeem all of such outstanding senior subordinated notes not tendered and accepted for payment pursuant to the tender offer, at 100% of their principal amount, plus accrued and unpaid interest, with the proceeds of this offering plus cash on hand.

The indenture we anticipate entering into in connection with this offering and the credit agreement impose certain restrictions on us and our subsidiaries regarding capital expenditures and limit our ability to do any of the following: incur additional indebtedness, dispose of assets, make repayments of indebtedness or amendments of debt instruments, pay distributions, create liens on assets and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. Such restrictions are subject to certain limitations and exclusions.

Under our credit arrangements at June 30, 2005, a number of covenants must be met, including, but not limited to, a minimum fixed charge coverage ratio, a minimum consolidated interest coverage ratio and a maximum leverage ratio. The amended and restated credit agreement dated August 1, 2005 eliminates the minimum fixed charge coverage ratio covenant. According to the credit agreement, EBITDA is defined as the sum of net income plus interest, taxes, depreciation and amortization. EBITDA is a factor utilized in calculating all of the ratios mentioned. The specific covenants and related definitions can be found in our credit agreement, which has been previously filed with the SEC. Covenants contained in our credit agreement are based on what we refer to herein as “EBITDA.”

In addition, a default under certain covenants in the indenture we anticipate entering into in connection with this offering could result in the acceleration of our payment obligations under our credit agreement and, under certain circumstances, in cross-defaults under other debt obligations. Any such defaults may have a negative effect on our liquidity.

A summary of contractual cash obligations as of June 30, 2005 is as follows:

	Payments Due By Period
	Total		Less than 1 year		1–3 years		4–5 years		After 5 years
Long-term debt(a)	$	297,468	$	1,861	$	153,440	$	141,582	$	585
Operating leases	550,597		69,202		154,550		118,116		208,729
Purchase commitments	161,161		161,161		—		—		—
Capital commitments	24,387		24,387		—		—		—
Employment and consulting agreements	4,131		2,668		1,463		—		—
Total contractual cash obligations	$	1,037,744	$	259,279	$	309,453	$	259,698	$	209,314

(a)Long-term debt does not give effect to $120 million of borrowings under our term loan A and this offering and the application of the proceeds therefrom. If adjusted to give effect to the $120,000 term loan A under our credit agreement (excluding the 8 ⁵¤₈% senior subordinated notes due 2007 to be redeemed with the net proceeds from this offering plus cash on hand), as of June 30, 2005, these amounts would increase by $120,000 in total, $0 in less than 1 year, $54,000 in 1-3 years, $66,000 in 4-5 years and $0 after 5 years. Long-term debt amounts also exclude interest payments. Utilizing our current borrowing rate of 5.3125% at June 30, 2005, the estimated interest to be paid over the remaining life of term loan C approximates $26,639. Of such amount, interest of approximately

(Footnote continued on following page)

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(Footnote continued from preceding page)

$7,441 is expected to be paid within the next twelve months. Since the interest rate on this debt is variable, the expected interest to be paid over the term of this loan is subject to revision as interest rates change. Interest payments relating to our 8 ⁵¤₈% senior subordinated notes are approximately $12,938 per annum.

We conduct retail operations under operating leases, which expire at various dates through 2029. Some of the leases contain renewal options and provide for contingent rent based upon sales plus certain tax and maintenance costs. Future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms in excess of one year are noted in the above table. In connection with a February 7, 2005 letter from the Office of the Chief Accountant of the SEC to the American Institute of Certified Public Accountants expressing its views of existing accounting literature related to lease accounting, we have completed a review of our lease accounting policies. As a result of this review, no adjustments were required to be recorded to the consolidated financial statements.

We were committed to make future purchases for inventory related items, such as raw materials and finished goods, under various purchase arrangements with fixed price provisions aggregating approximately $161,161 at June 30, 2005. Such purchase orders are generally cancelable at our discretion until the order has been shipped, but require repayment of all expenses incurred through the date of cancellation. During the nine months ended June 30, 2005, one supplier individually represented greater than 10% of our raw material purchases. Due to the numerous alternative suppliers available, we do not believe that the loss of this or any other single supplier would have a material adverse effect on our consolidated financial condition or results of operations.

We had approximately $5,582 in open capital commitments at June 30, 2005, primarily related to manufacturing equipment as well as to computer hardware and software. Also, we have an $8,105 commitment for an expansion of our softgel facility and a $10,700 commitment for the purchase of an additional manufacturing facility, both of which are expected to be completed within one year.

We have employment agreements with two of our executive officers. The agreements, entered into in October 2002, each have a term of five years and are automatically renewed each year thereafter unless either party notifies the other to the contrary. These agreements provide for minimum salary levels and contain provisions regarding severance and change in our control. The annual commitment for salaries to these two officers as of June 30, 2005 was approximately $1,170. In addition, five members of Holland & Barrett’s, or H&B, senior executive staff have service contracts terminable by us upon twelve months’ notice. The aggregate commitment for such H&B executive staff as of June 30, 2005 was approximately $1,273.

We maintain a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, a director. The agreement requires Mr. Rudolph to provide consulting services to us through December 31, 2005, in exchange for a consulting fee of $450 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to other of our executives.

We have grown through acquisitions, and expect to continue seeking to acquire entities in similar or complementary businesses. Such acquisitions are likely to require the incurrence and/or assumption of indebtedness and/or obligations, the issuance of equity securities or some combination thereof. In addition, we may from time to time determine to sell or otherwise dispose of certain of our existing assets or businesses; we cannot predict if any such transactions will be consummated, nor the terms or forms of consideration which might be required in any such transactions.

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EX-99.4

Exhibit 99.4

Summary

Overview

We are a leading vertically integrated manufacturer, marketer and retailer of a broad line of high quality, value-priced nutritional supplements in the U.S. and throughout the world. Under a number of our and third-party brands, we offer over 19,000 products, including vitamins, minerals, herbs, sports nutrition products, diet aids and other nutritional supplements. Some of our brands include Nature’s Bounty®, Vitamin World®, Puritan’s Pride®, Holland & Barrett®, Rexall®, Sundown®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, GNC (UK)®, De Tuinen®, Le NaturisteÔ and SISU®. We have continued to grow through our marketing practices and through a series of strategic acquisitions. Our total revenue and earnings before interest, taxes, depreciation and amortization, or EBITDA, for the twelve months ended June 30, 2005 were approximately $1.7 billion and $220 million, respectively.

Operating segments

We are vertically integrated in that we purchase raw materials, formulate and manufacture our products and then market our products through our four channels of distribution: Wholesale/US Nutrition, North American Retail, European Retail and Direct Response/Puritan’s Pride. In addition, we design and build certain equipment that we use to manufacture our products. We manufacture the vast majority of the nutritional supplements we sell.

The following provides an overview of our four operating segments.

Wholesale/US Nutrition.  We market our products under various brand names to many channels of distribution, including mass merchandisers, as well as leading drug store chains and supermarkets, independent pharmacies, health food stores, health food store wholesalers and other retailers. The Nature’s Bounty® and Sundown® brands are sold to mass merchandisers, as well as drug store chains, drug wholesalers, supermarket chains and wholesalers. We also sell directly to health food stores under our Solgar®, SISU® and Good ‘N Natural® brands and sell products, including a specialty line of vitamins, to health food wholesalers under the brand name American Health®. We have expanded sales of our various products offered in this segment to many countries throughout Europe, Asia and Latin America.

North American Retail.  At June 30, 2005, we operated 552 retail stores located throughout the U.S., Guam, Puerto Rico and the Virgin Islands under the Vitamin World® and Nutrition

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Warehouse® names and 103 retail stores under the Le Naturiste® name in Quebec, Canada. Each location carries a full line of our products under our brand names, as well as products manufactured by others. Through direct interaction between our personnel and the public at these retail locations, we are able to identify buying trends, customer preferences or dislikes, acceptances of new products and price trends in various regions of the country. This information is useful in initiating sales programs and new product introductions for all of our segments.

European Retail.  Our European Retail sales are generated by Holland & Barrett and GNC (UK) stores in the U.K., Nature’s Way in Ireland and De Tuinen stores in the Netherlands. Holland & Barrett is one of the leading nutritional supplement retailers in the U.K., with 491 locations in the U.K. at June 30, 2005. Holland & Barrett markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements, as well as food products, including fruits and nuts, confectionery and other items. GNC (UK) operated 35 locations in the U.K. at June 30, 2005, specializing in the sale of vitamins, minerals and sports nutrition products. At June 30, 2005, there were 16 Nature’s Way locations in Ireland selling a range of products similar to those offered by Holland & Barrett. With 67 locations in the Netherlands at June 30, 2005, De Tuinen is a leading retailer of health food products, selected confectionery and lifestyle giftware.

Direct Response/Puritan’s Pride.  We offer, through mail order and Internet e-commerce, a full line of vitamins and other nutritional supplement products, as well as selected personal care items under our Puritan’s Pride® brand names at prices which are generally at a discount from those of similar products sold in retail stores.

Through our Puritan’s Pride® brand, we are the leader in the U.S. direct response nutritional supplement industry with more than four million customers on our customer list, and response rates which we believe to be above the industry average. We intend to continue to attract new customers in our direct response operation through aggressive marketing techniques both in the U.S. and globally, and through selective acquisitions.

Our strengths

Innovative New Product Introduction.  We have consistently been among the first in the industry to introduce innovative products in response to new studies, research and consumer preferences. Given the changing nature of consumer demand for new products and the continued publicity about the importance of vitamins, minerals and nutritional supplements in the promotion of general health, as well as the growing number of overweight consumers, we believe that we will continue to maintain our core customer base and attract new customers based upon our ability to rapidly respond to consumer demand with high quality, value-oriented products.

Success in Executing and Integrating Strategic Acquisitions.  In the normal course of our business, we seek acquisition opportunities, both in the U.S. and internationally, of companies which complement or extend our existing product lines, increase our market presence, expand our distribution channels, and/or are compatible with our business philosophy. We have successfully acquired over 30 companies and/or businesses since 1986, which has enabled us to significantly expand our product lines and distribution reach. On February 25, 2005, we acquired Le Naturiste Jean-Marc Brunet, a chain of 103 retail stores located throughout Quebec, Canada in the business of developing, packaging, marketing and retailing an in-house

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range of private-label health and natural products. On June 8, 2005, we acquired SISU Inc., a Canadian-based manufacturer and distributor of a premium line of vitamins and supplements. On August 1, 2005, we acquired substantially all of the assets of Solgar Vitamin and Herb, or Solgar, a division of Wyeth Healthcare. Solgar is a manufacturer and distributor of premium-branded nutritional supplements, including multivitamins, minerals, botanicals and specialty formulas designed to meet the specific needs of men, women, children and seniors. See “ —Recent developments.” We continue to evaluate acquisition opportunities across the industry and around the world.

Diversified Cash Flow.  The size and diversity of our product portfolio, variety of distribution channels, and favorable demographics of the supplements industry provide us with diversified cash flows. We offer over 19,000 products through our many brands and 4 distribution channels which enable us to reach multiple end markets in the U.S., Canada and Europe. This diversity reduces our reliance on any single product or market within our portfolio.

Experienced Management Team.  Our management team has extensive experience in the nutritional supplement industry and has developed long-standing relationships with our suppliers and customers. Our executive officers have an average of over 20 years in our industry.

Our strategy

We target the growing value-conscious consumer segment by offering high-quality products at a value price. Our objectives are to increase sales, improve manufacturing efficiencies, increase profitability and strengthen our market position through the following key strategies:

Expand Existing Channels of Distribution.  Specific plans to expand channels of distribution include:

Increase Wholesale Sales in the U.S. and in Foreign Markets.  We intend to strengthen our wholesale business by continuing to increase our sales in food, drug and mass merchandising channels by:

•increasing revenues derived from existing customers through strong promotional activities and the aggressive introduction of new and innovative products;

•increasing shelf space in major retailers;

•leveraging the advertising and promotion of our major specialty brands, such as Osteo-Bi-Flex®, MET-Rx®, Flex-A-Min® and Knox®; and

•continuing to increase our private-label revenue with new customers and timely product introductions. In addition, we continue to form new distribution alliances throughout the world for our products.

Increase Direct Response/Puritan’s Pride Sales.  We expect to continue to strengthen our leading position in the e-commerce/direct response business by:

•improving automated picking and packing to fulfill sales order requests with greater speed and accuracy;

•increasing manufacturing capability to quickly introduce and deliver new products in response to customer demand;

•testing new and more frequent promotions to further improve response rates; and

•promoting our Internet websites.

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We also intend to continue our strategy of acquiring the customer lists, brand names and inventory of other mail order companies which have similar or complementary products which we believe can be efficiently integrated into our own operations without adding substantial overhead expenses.

Increase Retail Sales in North America.  We intend to continue to focus on the development of a nationwide chain of retail stores in the U.S. and Canada. To that end, at June 30, 2005, we operated 552 Vitamin World® and Nutrition Warehouse® retail stores located in regional and outlet malls throughout the U.S. and 103 Le Naturiste retail stores throughout Quebec, Canada. We have added approximately 61 retail stores in the U.S. since October 1, 2003, or approximately 11% of the total number of U.S. stores in operation at June 30, 2005. In addition, on February 25, 2005, we acquired the Canadian Le Naturiste chain of retail stores. New stores historically do not have the same high customer traffic as more mature stores. We plan to open new stores in North America in the near term as market conditions permit.

Our Savings Passport Card, a customer loyalty program, which increases customer traffic and provides incentives to purchase at Vitamin World, has continued to be successful since its introduction in 2000. We currently have approximately 5.8 million Savings Passport Card members. This program is an additional tool for us to track customer preferences and purchasing trends.

Increase Retail Sales in the U.K., Ireland and Europe.  We continue our strategy of selectively expanding the number of our Holland & Barrett stores located throughout the U.K. and Ireland. At June 30, 2005, there were 491 Holland & Barrett®  and 16 Nature’s Way® stores operating in the U.K. and Ireland. In fiscal 2004, Nature’s Way opened one new store in Ireland  and Holland & Barrett opened 10 new stores and converted 13 GNC (UK) retail stores to Holland & Barrett stores in the U.K. We project that, during the next twelve months, we will open additional retail stores in the U.K. and Ireland.

At June 30, 2005, there were 35 GNC (UK) retail stores operating in the U.K. and 67 De Tuinen retail stores operating in the Netherlands. We continue to evaluate opportunities to open additional GNC (UK) stores in the U.K. and De Tuinen stores in Europe.

Enhance Vertical Integration.  We believe that our vertical integration gives us a significant competitive advantage by allowing us to:

•maintain higher quality standards while lowering product costs, which can be passed on to the customer as lower prices;

•more quickly respond to scientific and popular reports and consumer buying trends;

•more effectively meet customer delivery schedules;

•reduce dependence upon outside suppliers; and

•improve overall operating margins.

We continually evaluate ways to further enhance our vertical integration by leveraging manufacturing, distribution, purchasing and marketing capabilities, and otherwise improving the efficiency of our operations.

Build Infrastructure to Support Growth.  We have technologically advanced, state-of-the-art manufacturing and production facilities, with total production capacity of approximately 39 billion tablets, capsules and softgels per year. In July 2005, we completed the construction of a new distribution facility in Hazelton, Pennsylvania at a cost of approximately $19 million.

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During fiscal 2004, we began the expansion of our softgel facility in Bayport, New York, which we anticipate will be completed in fiscal 2006 with a total production capacity of approximately 3 billion tablets, capsules and softgels per year and at a projected cost of approximately $21 million. In addition, we also acquired a 400,000 square-foot facility in Augusta, Georgia for approximately $11 million on July 1, 2005. We regularly evaluate our operations and make investments in building infrastructure, as necessary, to support our continuing growth.

Recent developments

Acquisition of Solgar.  On August 1, 2005, we acquired substantially all of the assets of Solgar. For the year ended December 31, 2004, Solgar had sales of approximately $105 million. Solgar manufactures and distributes premium-branded nutritional supplements including multivitamins, minerals, botanicals and specialty formulas designed to meet the specific needs of men, women, children and seniors. Solgar’s products are sold at nearly 5,000 health food stores, natural product stores, natural pharmacies and specialty stores across the U.S. and internationally in 40 countries, including North and South America, Asia, the Middle East, Europe, South Africa, Australia and New Zealand. Solgar will strengthen our position in the health food store market, as the Solgar brand will be focused on serving the needs of the independent health food store across the U.S. The purchase price for this acquisition was $115 million in cash. Solgar’s headquarters and principal manufacturing facility are located in Bergen County, New Jersey.

On August 1, 2005, in connection with our acquisition of Solgar, we amended and restated our credit agreement by adding a new term loan facility of $120 million and increasing our revolving credit facility from $100 million to $125 million.

Tender Offer.  On August 25, 2005, we announced an offer to purchase for cash any and all of our $150 million in aggregate principal amount 85¤8% senior subordinated notes due September 15, 2007 at 100% of the principal amount thereof plus accrued and unpaid interest. The tender offer is subject to the satisfaction of certain conditions, including that we have available funds sufficient to pay the total consideration for the notes from the proceeds of a debt offering. We intend to use the net proceeds from this offering plus cash on hand to repurchase any and all such notes.

On or after the closing of the tender offer, we intend to exercise our right, pursuant to the terms of the indenture governing the 85¤8% senior subordinated notes, to redeem all of such outstanding 85¤8% senior subordinated notes not tendered and accepted for payment pursuant to the tender offer at 100% of their principal amount, plus accrued and unpaid interest, with the proceeds from this offering plus cash on hand.  This does not constitute a notice of redemption pursuant to the indenture governing the 85¤8% senior subordinated notes. Any such notice will be made at a later date by us in accordance with the terms of such indenture.

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Preliminary August 2005 Sales Results.  The following summarizes our preliminary unaudited sales results by segment for each of the month ended August 31, 2005 and 2004 and the two month period ended August 31, 2005 and 2004. These sales results are preliminary and are not necessarily indicative of our sales results for the fiscal quarter ended September 30, 2005 or any other period.

	One month period ended August 31,				Percentage change
(Dollars in millions)	2004		2005		2004 vs. 2005
Wholesale/US Nutrition	$	66	$	70	7	%
North American Retail/Vitamin World	17		19		7
European Retail/Holland & Barrett/GNC (UK)	44		45		2
Direct Response/Puritan’s Pride	16		14		(10	)
Total	$	142	$	148	4	%

	Two month period ended August 31,				Percentage change
(Dollars in millions)	2004		2005		2004 vs. 2005
Wholesale/US Nutrition	$	127	$	123	(4	)%
North American Retail/Vitamin World	34		38		10
European Retail/Holland & Barrett/GNC (UK)	91		90		(1	)
Direct Response/Puritan’s Pride	31		28		(9	)
Total	$	284	$	279	(2	)%

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Business

General

We are a leading vertically integrated manufacturer, marketer and retailer of a broad line of high quality, value-priced nutritional supplements in the U.S. throughout the world. Under a number of our and third-party brands, we offer over 19,000 products, including vitamins, minerals, herbs, sports nutrition products, diet aids and other nutritional supplements. Some of our brands include Nature’s Bounty®, Vitamin World®, Puritan’s Pride®, Holland & Barrett®, Rexall®, Sundown®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, GNC (UK)®, De Tuinen®, Le NaturisteÔ and SISU®. We have continued to grow through our marketing practices and through a series of strategic acquisitions. Our total revenue and EBITDA for the twelve months ended June 30, 2005 were approximately $1.7 billion and $220 million, respectively.

Our strengths

Innovative New Product Introduction.  We have consistently been among the first in the industry to introduce innovative products in response to new studies, research and consumer preferences. Given the changing nature of consumer demand for new products and the continued publicity about the importance of vitamins, minerals and nutritional supplements in the promotion of general health, as well as the growing number of overweight consumers, we believe that we will continue to maintain our core customer base and attract new customers based upon our ability to rapidly respond to consumer demand with high quality, value-oriented products.

Success in Executing and Integrating Strategic Acquisitions.  In the normal course of our business, we seek acquisition opportunities, both in the U.S. and internationally, of companies which complement or extend our existing product lines, increase our market presence, expand our distribution channels, and/or are compatible with our business philosophy. We have successfully acquired over 30 companies and/or businesses since 1986, which has enabled us to significantly expand our product lines and distribution reach. On February 25, 2005, we acquired Le Naturiste Jean-Marc Brunet, a chain of 103 retail stores located throughout Quebec, Canada in the business of developing, packaging, marketing and retailing an in-house range of private-label health and natural products. On June 8, 2005, we acquired SISU Inc., a Canadian-based manufacturer and distributor of a premium line of vitamins and supplements. On August 1, 2005, we acquired Solgar, a manufacturer and distributor of premium-branded nutritional supplements, including multivitamins, minerals, botanicals and specialty formulas designed to meet the specific needs of men, women, children and seniors. See “Summary—Recent developments.” We continue to evaluate acquisition opportunities across the industry and around the world.

Diversified Cash Flow.  The size and diversity of our product portfolio, variety of distribution channels, and favorable demographics of the supplements industry provide us with diversified cash flows. We offer over 19,000 products through our many brands and 4 distribution channels which enable us to reach multiple end markets in the U.S., Canada and Europe. This diversity reduces our reliance on any single product or market within our portfolio.

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Experienced Management Team.  Our management team has extensive experience in the nutritional supplement industry and has developed long-standing relationships with our suppliers and customers. Our executive officers have an average of over 20 years in our industry.

Our strategy

We target the growing value-conscious consumer segment by offering high-quality products at a value price. Our objectives are to increase sales, improve manufacturing efficiencies, increase profitability and strengthen our market position through the following key strategies:

Expand Existing Channels of Distribution.  Specific plans to expand channels of distribution include:

Increase Wholesale Sales in the U.S. and in Foreign Markets.  We intend to strengthen our wholesale business by continuing to increase our sales in food, drug and mass merchandising channels by:

•increasing revenues derived from existing customers through strong promotional activities and the aggressive introduction of new and innovative products;

•increasing shelf space in major retailers;

•leveraging the advertising and promotion of our major specialty brands, such as Osteo-Bi-Flex®, MET-Rx®, Flex-A-Min® and Knox®; and

•continuing to increase our private-label revenue with new customers and timely product introductions. In addition, we continue to form new distribution alliances throughout the world for our products.

Increase Direct Response/Puritan’s Pride Sales.  We expect to continue to strengthen our leading position in the e-commerce/direct response business by:

•improving automated picking and packing to fulfill sales order requests with greater speed and accuracy;

•increasing manufacturing capability to quickly introduce and deliver new products in response to customer demand;

•testing new and more frequent promotions to further improve response rates; and

•promoting our Internet websites.

We also intend to continue our strategy of acquiring the customer lists, brand names and inventory of other mail order companies which have similar or complementary products which we believe can be efficiently integrated into our own operations without adding substantial overhead expenses.

Increase Retail Sales in North America.  We intend to continue to focus on the development of a nationwide chain of retail stores in the U.S. and Canada. To that end, at June 30, 2005, we operated 552 Vitamin World® and Nutrition Warehouse® retail stores located in regional and outlet malls throughout the U.S. and 103 Le Naturiste retail stores throughout Quebec, Canada. We have added approximately 61 retail stores in the U.S. in the past three fiscal years, or approximately 11% of the total number of U.S. stores in operation at June 30, 2005. In addition, on February 25, 2005, we acquired the Canadian Le Naturiste chain of retail stores.

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New stores historically do not have the same high customer traffic as more mature stores. We plan to open new stores in North America in the near term as market conditions permit.

Our Savings Passport Card, a customer loyalty program, which increases customer traffic and provides incentives to purchase at Vitamin World, has continued to be successful since its introduction in 2000. We currently have approximately 5.8 million Savings Passport Card members. This program is an additional tool for us to track customer preferences and purchasing trends.

Increase Retail Sales in the U.K., Ireland and Europe.  We continue our strategy of selectively expanding the number of our Holland & Barrett stores located throughout the U.K. and Ireland. At June 30, 2005, there were 491 Holland & Barrett® and 16 Nature’s Way® stores operating in the U.K. and Ireland. In fiscal 2004, Nature’s Way opened one new store and Holland & Barrett opened 10 new stores and converted 13 GNC (UK) retail stores to Holland & Barrett stores in the U.K. and Ireland. We project that, during the next twelve months, we will open additional retail stores in the U.K. and Ireland.

At June 30, 2005, there were 35 GNC (UK) retail stores operating in the U.K. and 67 De Tuinen retail stores operating in the Netherlands. We continue to evaluate opportunities to open additional GNC (UK) stores in the U.K. and De Tuinen stores in Europe.

Enhance Vertical Integration.  We believe that our vertical integration gives us a significant competitive advantage by allowing us to:

•maintain higher quality standards while lowering product costs, which can be passed on to the customer as lower prices;

•more quickly respond to scientific and popular reports and consumer buying trends;

•more effectively meet customer delivery schedules;

•reduce dependence upon outside suppliers; and

•improve overall operating margins.

We continually evaluate ways to further enhance our vertical integration by leveraging manufacturing, distribution, purchasing and marketing capabilities, and otherwise improving the efficiency of our operations.

Build Infrastructure to Support Growth.  We have technologically advanced, state-of-the-art manufacturing and production facilities, with total production capacity of approximately 39 billion tablets, capsules and softgels per year. In July 2005, we completed the construction of a new distribution facility in Hazelton, Pennsylvania at a cost of approximately $19 million. During fiscal 2004, we began the expansion of our softgel facility in Bayport, New York, which we anticipate will be completed in fiscal 2006 with a total production capacity of approximately 3 billion tablets, capsules and softgels per year and at a projected cost of approximately $21 million. In addition, we also acquired a 400,000 square-foot facility in Augusta, Georgia for approximately $11 million on July 1, 2005. We regularly evaluate our operations and make investments in building infrastructure, as necessary, to support our continuing growth.

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Operating segments

We are vertically integrated in that we purchase raw materials, formulate and manufacture our products and then market our products through our four channels of distribution: Wholesale/US Nutrition, North American Retail, European Retail and Direct Response/Puritan’s Pride. In addition, we design and build certain equipment that we use to manufacture our products. We manufacture the vast majority of the nutritional supplements we sell.

The following table sets forth the percentage of net sales for each of our operating segments:

	Fiscal years ended September 30,						Nine months ended June 30,
	2002		2003		2004		2005
Wholesale/US Nutrition	30	%	35	%	44	%	42	%
North American Retail	21	%	18	%	13	%	13	%
European Retail/Holland & Barrett/GNC (UK)	30	%	30	%	30	%	33	%
Direct Response/Puritan’s Pride	19	%	17	%	13	%	12	%
	100	%	100	%	100	%	100	%

Further information about the financial results of each of these segments is found in Note 19 to our consolidated financial statements contained elsewhere in this offering memorandum.

Wholesale/US Nutrition.  We market our products under various brand names to many channels of distribution, including mass merchandisers, as well as leading drug store chains and supermarkets, independent pharmacies, health food stores, health food store wholesalers and other retailers. The Nature’s Bounty® and Sundown® brands are sold to mass merchandisers, as well as drug store chains, drug wholesalers, supermarket chains and wholesalers. We also sell directly to health food stores under our Solgar®, SISU® and Good “N Natural® brands and sell products, including a specialty line of vitamins, to health food wholesalers under the brand name American Health®. We have expanded sales of our various products offered in this segment to many countries throughout Europe, Asia and Latin America.

North American Retail.  At June 30, 2005, we operated 552 retail stores located throughout the U.S., Guam, Puerto Rico and the Virgin Islands under the Vitamin World® and Nutrition Warehouse® names and 103 retail stores under the Le Naturiste® name in Quebec, Canada. Each location carries a full line of our products under our brand names, as well as products manufactured by others. Through direct interaction between our personnel and the public at these retail locations, we are able to identify buying trends, customer preferences or dislikes, acceptances of new products and price trends in various regions of the country. This information is useful in initiating sales programs and new product introductions for all of our segments.

In addition to www.puritan.com and www.vitamins.com, we also maintain another website, www.vitaminworld.com, to accommodate customers who wish to purchase nutritional supplements on the Internet, or to find a conveniently located store to make purchases in person. This website provides the consumer with information concerning the products offered

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in our retail stores and an easy and effective way to purchase Vitamin World products through our e-commerce portal.

European Retail.  Our European Retail sales are generated by Holland & Barrett and GNC (UK) stores in the U.K., Nature’s Way in Ireland and De Tuinen stores in the Netherlands. Holland & Barrett is one of the leading nutritional supplement retailers in the U.K., with 491 locations in the U.K. at June 30, 2005. Holland & Barrett markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements, as well as food products, including fruits and nuts, confectionery and other items. GNC (UK) operated 35 locations in the U.K. at June 30, 2005, specializing in the sale of vitamins, minerals and sports nutrition products. At June 30, 2005, there were 16 Nature’s Way locations in Ireland selling a range of products similar to those offered by Holland & Barrett. With 67 locations in the Netherlands at June 30, 2005, De Tuinen is a leading retailer of health food products, selected confectionery, and lifestyle giftware.

Direct Response/Puritan’s Pride.  We offer, through mail order and Internet e-commerce, a full line of vitamins and other nutritional supplement products, as well as selected personal care items under our Puritan’s Pride® brand names at prices which are generally at a discount from those of similar products sold in retail stores.

Through our Puritan’s Pride® brand, we are the leader in the U.S. direct response nutritional supplement industry with more than four million customers on our customer list, and response rates which we believe to be above the industry average. We intend to continue to attract new customers in our direct response operation through aggressive marketing techniques both in the U.S. and globally, and through selective acquisitions.

In order to maximize sales per catalog and reduce mailing and printing costs, we regularly update our mail order list to include new customers and to eliminate those who have not placed an order within a designated period of time. In addition, in order to add new customers to our mailing lists and websites and to increase average order sizes, we place advertisements in newspaper supplements and conduct insert programs with other mail order companies. Our use of state-of-the-art equipment in our direct response operations, such as computerized mailing, bar-coded addresses and automated picking and packing systems enables us to fill each order typically within 24 hours of its receipt. This equipment and expertise allows us to lower our per customer distribution costs, thereby enhancing margins and enabling us to offer our products at lower prices than our competitors.

Our www.puritan.com and www.vitamins.com websites provide a practical and convenient method for consumers wishing to purchase products that promote healthy living. Through these websites, consumers have access to the full line of more than 1,500 products which are offered through our Puritan’s Pride® mail order catalog. Consumer orders are processed with the speed, economy and efficiency of our automated picking and packing system.

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Employees and advertising

At September 30, 2004, we employed approximately 10,000 persons, including:

•2,339 sales associates located throughout the U.S. in our Vitamin World® and Nutrition Warehouse® retail stores;

•2,515 manufacturing, shipping and packaging associates throughout the U.S.;

•861 associates in administration throughout the U.S.;

•206 associates who sell to our wholesale distributors and customers;

•74 in-house advertising associates;

•3,323 associates in our Holland & Barrett operations, including: 2,903 retail associates, 249 associates in distribution, and 171 associates in administration;

•322 associates in our De Tuinen operations, including: 287 retail associates, and 35 associates in administration and warehousing;

•235 associates in GNC (UK) retail stores;

•72 associates in Nature’s Way retail stores; and

•24 associates in FSC wholesale administration, production and warehousing.

We sold the FSC business in December 2004. In addition, we added 400 associates around the world in connection with our acquisition of Solgar® on August 1, 2005. We also sell our products through commissioned sales representative organizations. We believe we have satisfactory employee and labor relations.

For the fiscal years ended September 30, 2002, 2003 and 2004, we spent approximately $48 million, $66 million and $85 million, respectively, on advertising and promotions, including print, media and cooperative advertising. A significant portion of the increased advertising relates to additional promotions at the Rexall Sundown, Inc., or Rexall, operations, acquired by us in July 2003. We create our own advertising materials through our in-house staff of associates. In the U.K. and Ireland, both Holland & Barrett and Nature’s Way have run advertisements on television and in national newspapers, and conducted sales promotions. GNC (UK) and De Tuinen also advertise in newspapers and conduct sales promotions. In addition, Holland & Barrett and De Tuinen each publish their own magazines with articles and promotional materials.

Manufacturing, distribution and quality control

At September 30, 2004, we employed approximately 2,515 manufacturing, shipping and packaging associates throughout the U.S. Our manufacturing activities are conducted in New York, California, Florida and New Jersey. In addition, we constructed a 420,000 square-foot warehouse facility in Hazelton, Pennsylvania at a cost of approximately $19 million and a 400,000 square-foot building in Augusta, Georgia for $11 million. During fiscal 2004, we began the expansion of our softgel facility in Bayport, New York, which we anticipate will be completed in fiscal 2006 with a total production capacity of approximately three billion tablets and a projected cost of approximately $21 million. All of our manufacturing operations are subject to Good Manufacturing Practice regulations, or GMPs, promulgated by the U.S. Food

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and Drug Administration, or FDA, and other applicable regulatory standards. We manufacture products for our four operating segments as well as for third parties. We believe that, generally, the capacity of our manufacturing and distribution facilities is adequate to meet the requirements of our current business and will be adequate to meet the requirements of anticipated increases in sales.

We place special emphasis on quality control. All raw materials used in production are assigned a unique lot number and are initially held in quarantine, during which time our laboratory chemists assay the raw materials for compliance with established specifications. Once released, samples are retained and the material is processed according to approved formulas by mixing, granulating, compressing, encapsulating and sometimes coating operations. After the tablet or capsule is manufactured, laboratory technicians test its weight, purity, potency, disintegration and dissolution. Generally, when products such as vitamin tablets are ready for bottling, our automated equipment counts the tablets, inserts them into bottles, adds a tamper-resistant cap with an inner safety seal and affixes a label. We use computer-generated documentation for picking and packing for order fulfillment.

Our manufacturing operations are designed to allow low-cost production of a wide variety of products of different quantities, sizes and packaging while maintaining a high level of customer service and quality. Flexible production line changeover capabilities and reduced cycle times allow us to respond quickly to changes in manufacturing schedules.

Inventory control.  We have installed inventory control systems at our facilities that enable us to track each product as it is received from our supply sources through manufacturing and shipment to our customers. To facilitate this tracking, a significant number of products sold by us are bar coded. Our inventory control systems report shipping, sales and individual SKU level inventory information. We manage the retail sales process by monitoring customer sales and inventory levels by product category. We believe that our distribution capabilities enable us to increase flexibility in responding to the delivery requirements of our customers.

Information from our point-of-sale computer system is regularly reviewed and analyzed by the purchasing staff to assist in making merchandise allocation and markdown decisions. We use an automated reorder system to maintain in-stock positions on key items. These systems provide us with the information needed to determine the proper timing and quantity of reorders.

Financial reporting.  Our financial reporting systems provide us with detailed financial reporting to support our operating decisions and cost control efforts. These systems provide functions such as scheduling of payments, receiving of payments, general ledger interface, vendor tracking and flexible reporting options.

Research and development

In the last three fiscal years and for the nine months ended June 30, 2005, we did not expend material amounts for research and development of new products.

Competition; customers

The market for nutritional supplement products is highly competitive. Competition is based primarily on price, quality and assortment of products, customer service, marketing support, and availability of new products. We believe we compete favorably in all of these areas.

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Our direct competition consists primarily of publicly and privately owned companies, which tend to be highly fragmented in terms of both geographical market coverage and product categories. We also compete with companies which may have broader product lines and/or larger sales volumes. Our products also compete with nationally advertised brand name products. Most of the national brand companies have resources greater than our resources.

There are numerous companies in the vitamin and nutritional supplement industry selling products to retailers, including mass merchandisers, drug store chains, independent drug stores, supermarkets and health food stores. Many companies within the industry are privately held. Therefore, we are unable to precisely assess the size of all of our competitors or where we rank in comparison to such privately held competitors with respect to sales to retailers.

For the nine months ended June 30, 2005 and 2004 the following individual customers accounted for the following percentages of the Wholesale/US Nutrition segment’s net sales, respectively:

	Nine months ended June 30,
	2004		2005
Customer A	19	%	14	%
Customer B	11	%	17	%

Customer A is primarily a supplier to Customer B. Therefore, the loss of Customer B would likely result in the loss of most of the net sales to Customer A. While no one customer represented, individually, more than 10 percent of our consolidated net sales for the nine months ended June 30, 2005 and 2004, the loss of either one of these customers would have a material adverse effect on the Wholesale/US Nutrition segment if we were unable to replace such customer(s).

The following individual customers accounted for 10% or more of the Wholesale/US Nutrition segment’s total gross accounts receivable as of June 30, 2005 and September 30, 2004, respectively:

	September 30, 2004		June 30, 2005
Customer A	5	%	11	%
Customer B	12	%	10	%
Customer C	10	%	6	%
Customer D	7	%	11	%

Government regulation

United States.  The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by federal agencies, including the FDA, the Federal Trade Commission, or FTC, the Postal Service, the Consumer Product Safety Commission, the Department of Agriculture, the Environmental Protection Agency, and also by various agencies of the states, localities and foreign countries in which our products are sold. In particular, the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, regulates the formulation, manufacturing, packaging, labeling, distribution and sale of dietary supplements, including vitamins, minerals and herbs, and of over-the-counter, or OTC, drugs, while the FTC regulates the advertising of these products, and the Postal Service regulates advertising claims with respect to such products sold by mail order.

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The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994, or DSHEA. DSHEA established a new framework governing the composition and labeling of dietary supplements. With respect to composition, DSHEA defined “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a “new” dietary ingredient (i.e., a dietary ingredient that was “not marketed in the U.S. before October 15, 1994”) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” A new dietary ingredient notification must provide the FDA evidence of a “history of use or other evidence of safety” establishing that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredients that we may want to market, and the FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients. The FDA is in the process of developing guidance for the industry to clarify the FDA’s interpretation of the new dietary ingredient notification requirements, and this guidance may raise new and significant regulatory barriers for new dietary ingredients. In addition, increased FDA enforcement could lead the FDA to challenge dietary ingredients already on the market as “illegal” under the FDCA because of the failure to file a new dietary ingredient notification.

DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being (but may not state that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease unless such claim has been reviewed and approved by the FDA). A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. In some circumstances, it is necessary to disclose on the label that the FDA has not “evaluated” the statement, to disclose the product is not intended for use for a disease, and to notify the FDA about our use of the statement within 30 days of marketing the product. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that a company wants to use is an unacceptable disease claim or an unauthorized version of a “health claim.” Such a determination might prevent a company from using the claim.

In addition, DSHEA provides that certain so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Such literature must not be false or misleading; the literature may not “promote” a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. There can be no assurance, however, that all third-party literature that we would like to disseminate in connection with our products will satisfy each of these requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product involved to regulation as an unapproved drug.

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As authorized by DSHEA, the FDA has recently proposed GMPs specifically for dietary supplements. These new GMP regulations, if finalized (as predicted to occur in the near future), would be more detailed than the GMPs that currently apply to dietary supplements and may, among other things, require dietary supplements to be prepared, packaged and held in compliance with certain rules, and might require quality control provisions similar to those in the GMP regulations for drugs. There can be no assurance that, if the FDA adopts GMP regulations for dietary supplements, we will be able to comply with the new rules without incurring substantial expense.

The FDA generally prohibits the use in labeling for a dietary supplement of any “health claim” (that is not authorized as a “statement of nutritional support” permitted by DSHEA) unless the claim is pre-approved by the FDA. There can be no assurance that some of the labeling statements that we would like to use will not be deemed by the FDA to be “unauthorized health or disease claims” that are not permitted to be used.

Although the regulation of dietary supplements is in some respects less restrictive than the regulation of drugs, there can be no assurance that dietary supplements will continue to be subject to less restrictive regulation. Legislation has been periodically introduced in Congress, including in 2004 and 2005, to amend the FDCA to place more restrictions on the marketing of dietary supplements. In addition, Congress has been asked to consider various systems for pre-market and post-market review of dietary supplements to make the regulation of these products more like the regulation of drugs under the FDCA. The FDA regulates the formulation, manufacturing, packaging, labeling and distribution of OTC drug products pursuant to a “monograph” system that specifies active drug ingredients that are generally recognized as safe and effective for particular uses. If an OTC drug is not in compliance with the applicable FDA monograph, the product generally cannot be sold without first obtaining the FDA approval of a new drug application, a long and expensive procedure. There can be no assurance that, if more stringent statutes are enacted for dietary supplements, or if more stringent regulations are promulgated, we will be able to comply with such statutes or regulations without incurring substantial expense.

The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements and OTC drugs, including powers to issue a public “warning letter” to a company, to publicize information about illegal products, to request a voluntary recall of illegal products from the market, and to request the Department of Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. courts.

The FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to adequately substantiate claims made in advertising or for the use of false or misleading advertising claims. These enforcement actions have often resulted in consent decrees and the payment of civil penalties and/or restitution by the companies involved. We are currently subject to FTC consent decrees resulting from past advertising claims for certain of our products. Rexall Sundown is also currently subject to FTC consent decrees resulting from past advertising claims for certain of its products. As a result, we are required to maintain compliance with these decrees and are subject to an injunction and substantial civil monetary penalties if there should be any failure to comply. Further, the U.S. Postal Service has issued cease and desist orders against certain mail order advertising claims made by dietary supplement manufacturers, including us, and we are required to maintain compliance with the orders applicable to us, subject to civil monetary penalties for any noncompliance. Violations of these orders could result in substantial monetary penalties. Civil penalty actions could have a material adverse effect on our consolidated financial position or results of operations.

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In June 2003, we received a letter of inquiry from the FTC concerning our marketing of a certain weight loss program, as well as the marketing of the Royal Tongan Limu dietary supplement by our subsidiary, Dynamic Essentials (DE), Inc., or DEI. Subsequent to the receipt of this letter, we voluntarily stopped all sales and promotions of the weight loss product in question and of Royal Tongan Limu. We also ceased all DEI operations and terminated all DEI employees. We have had follow-up meetings and correspondence with the FTC with respect to these products. In March 2005, FTC Staff recommended to the FTC Commissioners that a civil penalty action should be brought against us alleging our violation of its 1995 FTC consent decree. We have discussed the FTC Staff’s recommendation with the FTC Commissioners and the Department of Justice. Based upon the information available at this time, we believe that our accrual is adequate for the exposure in this matter.

In March 2003, we ceased selling products that contain ephedra. Though we continue to believe that the ephedra products we sold are safe to use as directed, the adverse publicity surrounding ephedra products and the regulatory environment in the U.S. led us to the decision to cease selling ephedra products, in our best interests and that of our shareholders. Overall, sales of ephedra products represented an insignificant portion of our business. Subsequent to the decision to cease selling ephedra products, we were named as a defendant or a third-party defendant in several actions, alleging liability (under various theories, including negligence, false advertising, strict liability in tort and failure to warn) as well as personal injury with respect to our sales, manufacturing and distribution of products containing ephedra. We have notified our insurance carriers and third-party vendors with regard to each suit and vigorously contest the allegations in these actions. We did not acquire any ephedra assets, liabilities or operations in connection with our purchase of Rexall Sundown. All such operations were retained by Royal Numico N.V., the prior owner of Rexall Sundown. The FDA issued a final regulation on February 11, 2004 prohibiting the sale of ephedra based on the FDA’s safety concerns. This final regulation has been challenged in two separate third-party lawsuits, one of which is pending at this time. The court in the other lawsuit declared the FDA’s rule banning ephedra invalid. The FDA has appealed and that appeal is pending. Legislation has also been introduced in Congress to effect a legislative reversal of this court decision, and thereby impose a risk/benefit standard on dietary supplement safety reviews.

We are also subject to regulation under various state, local, and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and OTC drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products. Compliance with such foreign governmental regulations is generally the responsibility of our distributors in those countries. These distributors are independent contractors whom we do not control.

In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, when and if it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel, or other new requirements. Any such developments could have a material adverse effect on us.

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Europe.  In Europe, the EU Commission is responsible for developing legislation to regulate foodstuffs and medicines. Although the government of each Member State may implement legislation governing these products, national legislation must be compatible with and cannot be more restrictive than European requirements. Each Member State is responsible for its enforcement of the provisions of European and national legislation.

United Kingdom.  In the United Kingdom, the two main pieces of legislation that affect the operations of Holland & Barrett and GNC (UK) are the Medicines Act 1968, which regulates the licensing and sale of medicines, and the Food Safety Act 1990, which provides for the safety of food products. A large volume of secondary legislation in the form of Statutory Instruments adds detail to the main provisions of the above Acts governing composition, packaging, labeling and advertising of products.

In the U.K. regulatory system a product intended to be taken orally will fall within either the category of food or the category of medicine. There is currently no special category of dietary supplement as provided for in the U.S. by DSHEA. Some products which are intended to be applied externally, for example creams and ointments, may be classified as medicines and others as cosmetics.

The Medicines and Healthcare products Regulatory Agency, or MHRA, now has responsibility for the implementation and enforcement of the Medicines Act, and is the licensing authority for medicinal products. The MHRA directly employs enforcement officers from a wide range of backgrounds, including the police, and with a wide range of skills, including information technology. However, the MHRA still relies heavily on competitor complaints to identify non-compliant products. The MHRA is an Executive Agency of the Department of Health. The MHRA decides whether a product is a medicine or not and, if so, considers whether it can be licensed. It determines the status of a product by considering whether it is medicinal by “presentation” or by “function”. Many, though not all, herbal remedies are considered “medicinal” by virtue of these two tests.

The Food Standards Agency, or FSA, deals with legislation, policy and oversight of food products, with enforcement action in most situations being handled by local authority Trading Standards Officers. The large number of local authorities in the U.K. can lead to an inconsistent approach to enforcement. Unlike the MHRA, local authorities regularly purchase products and analyze them to identify issues of non-compliance. The FSA answers primarily to Ministers at the Department of Health and the Department of Environment Food and Rural Affairs. Most vitamin and mineral supplements, and some products with herbal ingredients, are considered to be food supplements and fall under general food law which requires them to be safe. Despite the differences in approaches in identifying non-compliant products, both the MHRA and local authorities can, and do, prosecute where issues of non-compliance are identified.

In July 2002, the European Union, or EU, published in its Official Journal the final text of a Food Supplements Directive which became effective in the European Community, or EU, on that date, and which sets out a process and timetable by which the Member States of Europe must bring their domestic legislation in line with its provisions. The Directive seeks to harmonize the regulation of the composition, labeling and marketing of food supplements (at this stage only vitamins and minerals) throughout the EU. It does this by specifying what nutrients and nutrient sources may be used (and by interpretation the rest which may not), and the labeling and other information which must be provided on packaging. In addition, this Directive is intended to regulate the levels at which these nutrients may be present in a supplement. These maximum permitted levels are due to be announced shortly.

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By harmonizing the legislation, the Food Supplements Directive should provide opportunities for businesses to market one product or a range of products to a larger number of potential customers without having to reformulate or repackage it. This development may lead to some liberalizing of the more restrictive regimes in France and Germany, providing new business opportunities. Conversely, however, it may substantially limit the range of nutrients and nutrient sources, and eventually the potencies at which some nutrients may be marketed by us in the more liberal countries, such as the U.K., which may lead to some reformulation costs and loss of some specialty products.

The Food Supplements Directive has not been well received and two challenges were brought in the U.K. Courts attacking its validity. The matters were subsequently referred to the European Courts of Justices, or ECJ, for resolution. The ECJ upheld the validity of the Directive, ruling that its contents were legal under European Law. However, due to the ECJ’s comments on procedure, the Commission has undertaken to look at ways to ensure the Directive is implemented in a transparent and timely manner.

The provisions of the Food Supplements Directive have been incorporated into U.K. domestic law (which includes England & Wales, Scotland and Northern Ireland) by Statutory Instrument and applies from August 2005.

On April 30, 2004 the EU published the Traditional Herbal Medicinal Products Directive, or THMPD, which requires traditional herbal medicine to be registered in each Member State in which they are intended to be marketed. A registration will require a product to be manufactured to pharmaceutical GMP standards; however there is no need to demonstrate efficacy, provided that the product is safe, is manufactured to high standards, and has been on the market for 30 years. The THMPD is intended to provide a safe home in EU law for a number of categories of herbal remedies, which may otherwise be found to fall outside EU law. It does not, however, provide a mechanism for new product development, and would entail some compliance costs in registering the many herbal products already on the market. Member States have to put into place the provisions for national compliance by October 2005. This is the anticipated date on which Traditional Herbal Medicinal products can be registered. A transitional period of seven years has been granted to allow all relevant products to be registered. Full compliance is required by April 2011. While we currently believe that we will comply with this Directive, there can be no assurances that we will be able to do so without incurring substantial expense.

Additional European legislation is being developed to regulate sports nutrition products, including the composition of such products. In particular, such legislation could restrict the type of nutrients we may use in our products. Legislation introducing maximum permitted levels for nutrients in fortified foods is also under discussion together with legislation introducing a positive list for enzymes. These proposals, if implemented, could require us to reformulate our existing products. Also, proposals to amend medicine legislation will impact traditional herbal medicines and introduce new requirements, which may lead to higher associated costs.

The EU has established a European Food Safety Authority, which will have an important role to play in focusing attention on food standards in Europe. Its Executive Director is Mr. Geoffrey Podger, who until 2003 was the Chief Executive of the U.K.’s Food Standards Agency.

Ireland.  The legislative and regulatory situation in the Republic of Ireland is similar, but not identical to that in the U.K.

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The Irish Medicines Board has a similar role to that of the U.K.’s MHRA and the Food Safety Authority of Ireland is analogous to the U.K.’s FSA.

Like the U.K., Ireland will be required to bring its domestic legislation into line with the provisions of the Food Supplements Directive and the THMPD when the latter is finalized, and, indeed, with the other forthcoming EU legislation mentioned above. Thus the market prospects for Ireland are, in general, similar to those outlined in the U.K.

Netherlands.  The regulatory environment in the Netherlands is similar to the U.K. in terms of availability of products. The Netherlands currently has the same liberal market, with no restrictions on potency of nutrients. Licensed herbal medicines are available. However, there are some herbal medicines which are sold freely as in the U.K. without the need to be licensed, depending on the claims made for them. The Netherlands is also more liberal regarding certain substances, for which unlicensed sales are allowed. The government department dealing with this sector is the Ministry for Health, Welfare and Sport.

Responsibility for food safety falls to the Keuringsdienst van Waren (Inspectorate for Health Protection and Veterinary Public Health). This authority deals with all nutritional products. The Medicines Evaluation Board, which is the equivalent of the U.K.’s MHRA, is charged with responsibility for the safety of medicines which are regulated under the Supply of Medicines Act.

The overall market prospects for the Netherlands are, in general, similar to those outlined for the U.K. above.

Canada.  The legislative and regulatory situation in Canada is similar, but not identical, to that in the U.S. The manufacturing, packaging, labeling, storage, importation, advertising, distribution and sale of natural health products, or NHP, and hybrid NHPs are subject to regulation by Health Canada including, specifically, the Therapeutic Products Directorate, the Natural Health Products Directorate and the Health Protection and Food Branch Inspectorate. Health Canada regulates NHPs (which include vitamins and minerals, herbal remedies, homeopathic medicines, traditional medicines, probiotics and products like amino acids and essential fatty acids) and hybrid NHPs pursuant to the Food and Drugs Act (Canada), the Food and Drug Regulations, the Natural Health Product Regulations and various Guidance Documents and Policies related to thereto.

Prior to January 1, 2004, NHPs for which therapeutic claims were made were regulated as drugs requiring a Drug Identification Number (DIN). Effective January 1, 2004, NHPs in Canada became subject to new requirements under the Natural Health Product Regulations. Under the NHP Regulations, manufacturers are required to make application for a product license, and the application must provide specific information including quality of medicinal ingredients, use and purpose of the NHPs, and the supporting safety and efficacy data. These regulations also set out a regime for site licensing of buildings in which NHPs are imported, distributed, manufactured, packaged, labeled or stored. The primary prerequisite of a site license is that good manufacturing practices be employed.

As of January 1, 2004, all new products that are NHPs must comply with the NHP Regulations. For products already marketed in Canada as of that date, transition periods from January 1, 2004 for compliance with the requirements are provided for, including two years for GMP and

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site license requirements, four years for the product license requirement for NHPs without a DIN and five years for the product license requirement for NHPs with a DIN.

NBTY has adopted a phased-in compliance strategy in accordance with the prescribed transition periods. The overall risk factors and market prospects for Canada are, in general, similar to those outlined in the U.S.

International operations

In addition to the U.K., Ireland and the Netherlands, we market our nutritional supplement products through distributors, retailers and direct mail in more than 85 countries throughout Europe, North America, South America, Asia, the Pacific Rim countries, Africa and the Caribbean Islands.

Our international operations are conducted in a manner to conform to local variations, economic realities, market customs, consumer habits and regulatory environments. Our products (including labeling of such products) and our distribution and marketing programs are modified in response to local and foreign legal requirements and customer preferences.

Our international operations are subject to many of the same risks faced by our domestic operations. These include competition and the strength of the relevant economy. In addition, international operations are subject to certain risks inherent in conducting business abroad, including foreign regulatory restrictions, fluctuations in monetary exchange rates, import-export controls and the economic and political policies of foreign governments. The importance of these risks increases as our international operations grow and expand. Virtually all of our international operations are affected by foreign currency fluctuations, and, more particularly, changes in the value of the British Pound, the Euro and the Canadian Dollar as compared to the U.S. Dollar.

Trademarks

U.S.  We have applied for or registered more than 2,100 trademarks with the U.S. Patent and Trademark Office and many other major jurisdictions throughout the world for our Nature’s Bounty®, Vitamin World®, Puritan’s Pride®, Holland & Barrett®, Rexall®, Sundown®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, GNC (UK)®, De Tuinen®, Le NaturisteÔ and SISU® trademarks, among others, and have rights to use other names essential to our business. Federally registered trademarks have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as trademarks, subject to the rights of third-parties to seek cancellation of the trademarks if they claim priority or confusion of usage. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement.

Canada.  Each of Solgar, Le Naturiste and SISU owns the trademarks registered in Canada for their respective Solgar®, Le Naturiste® and SISU® names.

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U.K./Ireland.  Holland & Barrett owns trademarks registered in the United Kingdom and/or throughout the European Community for its Holland & Barrett and Nature’s Way trademarks and has rights to use other names essential to its business. Holland & Barrett is the exclusive licensee of the trademarks essential to the GNC (UK) business in the U.K.

Netherlands.  De Tuinen owns trademarks registered in the Netherlands and/or throughout the European Community for its De Tuinen trademarks and has rights to use other names essential to its business.

Raw materials

In fiscal 2004, we spent approximately $400 million on raw materials. The principal raw materials required in our operations are vitamins, minerals, herbs, gel caps, and bottling materials. We purchase the majority of our vitamins, minerals and herbs from bulk manufacturers and distributors in the U.S., Japan, China and Europe. We believe that there are adequate sources of supply for all of our principal raw materials. We also believe that our strong relationships with our suppliers yield improved quality, pricing and overall service to our customers. Although there can be no assurance that our sources of supply for our principal raw materials will be adequate in all circumstances, in the event that such sources are not adequate, we believe that alternate sources can be developed in a timely and cost-effective manner. During fiscal 2004, no one supplier accounted for more than 10% of our raw material purchases. During the nine months ended June 30, 2005, one supplier individually represented greater than 10% of our raw material purchases. Due to numerous alternative suppliers available, we do not believe that the loss of this or any other single supplier would have a material adverse effect on our consolidated financial condition or results of operations.

Seasonality

Although we believe that our business is not seasonal in nature, historically, we have experienced, and expect to continue to experience, a substantial variation in our net sales and operating results from quarter to quarter. We believe that the factors which influence this variability of quarterly results include general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, the level of consumer acceptance of each new product, the seasonality of the markets in which we participate, and the actions of competitors. Accordingly, a comparison of our results of operations from consecutive periods is not necessarily meaningful, and our results of operations for any period are not necessarily indicative of future performance. Additionally, we may experience higher net sales in a quarter depending upon when we have engaged in significant promotional activities.

Properties

U.S.  At September 30, 2004, we owned a total of approximately 1.9 million square feet of plant and administrative facilities. We also leased approximately 1.3 million square feet of administrative, manufacturing, warehouse and distribution space in various locations at the end of fiscal 2004. At June 30, 2005, we leased and operated approximately 552 retail locations under the names Vitamin World® and Nutrition Warehouse® in 45 states in the U.S., Guam, Puerto Rico and the Virgin Islands. Generally, we lease the properties for three to ten years at varying annual base rents and percentage rents in the event sales exceed a specified amount.

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The Vitamin World and Nutrition Warehouse retail stores have an average selling area of approximately 930 square feet. See “ —Manufacturing, distribution and quality control.”

U.K./Ireland.  Holland & Barrett owns a 281,000 square-foot administrative, manufacturing and distribution facility (which includes a 65,000 square-foot mezzanine) in Burton. Holland & Barrett leases all but four of its 532 Holland & Barrett, GNC (UK), and Nature’s Way retail stores for terms varying between 10 and 35 years at varying annual base rents. Nine Holland & Barrett stores are subject to percentage rents in the event sales exceed a specified amount. Holland & Barrett stores each have an average selling area of approximately 945 square feet; Nature’s Way Stores each have an average selling area of approximately 510 square feet; and the GNC (UK) stores have an average selling area of approximately 970 square feet.

Netherlands.  De Tuinen leases a 71,400 square-foot administrative and distribution facility in Beverwijk. De Tuinen leases locations for 67 retail stores on renewable five-year terms at varying annual base rents. Of these, 44 are operated as company stores; the remaining 23 are sub-leased to, and operated by, franchisees. None of De Tuinen’s stores are subject to percentage rents.

Canada.  SISU Inc. leases a 30,200 square-foot facility in Burnaby, British Columbia. This facility is used for the purposes of packaging, storing, manufacturing and distributing vitamins, and also contains various administrative offices. The lease currently expires in February 2006. We are in the process of renewing our lease for this facility. At June 30, 2005, we leased 103 retail locations under our Le Naturiste name throughout Quebec, Canada.

The following is a listing, as of August 1, 2005, of all material properties (excluding retail locations and de minimis sales office locations) owned or leased by us, which are used in all four of our business segments:

Location	Type of Facility	Approx. Sq. Feet	Leased or Owned
United States:
Bohemia, NY	Administration & Manufacturing	169,000	Owned
Bohemia, NY	Manufacturing	80,000	Owned
Bohemia, NY(1)	Manufacturing	75,000	Owned
Bohemia, NY	Manufacturing & Warehousing	62,000	Owned
Bohemia, NY	Administration & Warehousing (term — 2009)	110,000	Leased
Bohemia, NY	Administration & Warehousing (term — 2009)	130,000	Leased
Holbrook, NY(1)	Distribution	230,000	Owned
Holbrook, NY	Distribution	108,000	Owned
Ronkonkoma, NY	Administration & Distribution	110,000	Owned
Ronkonkoma, NY	Warehousing (term — 2014)	75,000	Leased
Bayport, NY	IT Services	12,000	Owned

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Location	Type of Facility	Approx. Sq. Feet	Leased or Owned
Bayport, NY	Manufacturing	131,000	Owned
Mineola, NY	Administrative	13,000	Owned
Mineola, NY	Administration & Warehousing	4,000	Owned
Murphysboro, IL	Manufacturing	62,000	Owned
Murphysboro, IL	Warehousing (term — 2008)	30,000	Leased
Carbondale, IL	Administration, Manufacturing & Distribution	77,000	Owned
Carbondale, IL	Administration	15,000	Owned
Leonia, NJ	Administration & Sales Office (term — July 2008)	59,000	Leased
Lyndhurst, NJ	Sales Office, Warehousing & Packaging (term — February 2008)	130,000	Leased
South Plainfield, NJ	Manufacturing	68,000	Owned
South Plainfield, NJ	Manufacturing & Distribution (term — 2006)	40,000	Leased
North Glenn, CO	Administration (term — 2007)	4,900	Leased
Anaheim, CA	Manufacturing & Distribution (term — 2008)	286,000	Leased
Anaheim, CA	Manufacturing (term — 2008)	64,000	Leased
Gardenia, CA	Distribution (term — 2007)	10,600	Leased
Lake Mary, FL	Administration (term — 2008)	12,250	Leased
Boca Raton, FL	Administration	92,000	Owned
Boca Raton, FL	Administration	58,000	Owned
Boca Raton, FL	Manufacturing	84,000	Owned
Deerfield Beach, FL	Manufacturing	157,000	Owned
Boca Raton, FL	Warehousing	100,000	Owned
Boca Raton, FL	Warehousing (term — 2006)	90,000	Leased
Piscataway, NJ	Warehousing (term — 2006)	15,000	Leased
Sparks, NV	Distribution (term — 2009)	202,000	Leased
Bentonville, AR	Sales Office (term — 2006)	4,200	Leased
Duluth, GA	Distribution (term — 2008)	32,000	Leased

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Location	Type of Facility	Approx. Sq. Feet	Leased or Owned
Canada:
Burnaby, BC	Administration, Manufacturing, Warehousing & Distribution (term — February 2006)	30,200	Leased
Mississauga, Ontario	Administration & Warehousing	4,600	Leased
United Kingdom:
Nuneaton	Administration (term — 2012)	8,300	Leased
Nuneaton	Administration & Distribution (term — 2010)	8,000	Leased
Burton	Administration, Manufacturing & Distribution	281,000	Owned
Tring	Sales Office & Warehousing (term — 2006)	26,000	Leased
Netherlands:
Beverwijk	Administration & Distribution (term — 2008)	71,400	Leased
Spain:
Madrid	Administration & Warehousing (term — December 31, 2006)	8,600	Leased

(1)The property is subject to a first mortgage. For additional information regarding the mortgage, see our consolidated financial statements contained in this offering memorandum.

Warehousing and distribution

With our recent acquisitions of the Hazelton, Pennsylvania and Augusta, Georgia facilities, we have dedicated approximately four million square feet in the following locations to warehousing and distribution: Long Island, New York; Carbondale and Murphysboro, Illinois; Anaheim and Gardenia, California; Duluth, Georgia; South Plainfield and Lyndhurst, New Jersey; Boca Raton, Florida; Sparks, Nevada; Nuneaton and Tring, U.K.; Burnaby, BC and Mississauga, Ontario, Canada; and Beverwijk, Netherlands facilities.

Our warehouse and distribution centers are integrated with our order entry systems to enable us to ship out mail orders typically within 24 hours of their receipt. Once a customer’s telephone, mail or Internet order is completed, our computer system forwards the order to our distribution center, where all necessary distribution and shipping documents are printed to facilitate processing. Thereafter, the orders are prepared, picked, packed and shipped continually throughout the day. We operate a proprietary, state-of-the-art, automated picking and packing system for frequently shipped items. We are capable of fulfilling 15,000 orders daily. A system of conveyors automatically routes boxes carrying merchandise throughout the distribution center for fulfillment of orders. Completed orders are bar-coded and scanned and the merchandise and ship date are verified and entered automatically into the customer order file for access by sales associates prior to being shipped. We currently ship our U.S. orders primarily through the United Parcel Service, Inc. (UPS), serving domestic and international markets. Holland & Barrett and GNC (UK) use Parcelforce and ANC for deliveries in the U.K., and Nature’s Way uses the Irish postal service for deliveries in Ireland.

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We currently distribute our products from our distribution centers through trucks we own, as well as contract and common carriers in the U.S. and the Netherlands and by trucks which we own in the U.K. Deliveries are made directly to the Vitamin World® and Nutrition Warehouse® stores once per week. In addition, we ship products overseas by container loads. We also operate additional distribution centers in Burton, U.K. and Beverwijk, the Netherlands. Deliveries are made directly to Holland & Barrett, GNC (UK), Nature’s Way, and De Tuinen, stores which we own and operate, once or twice per week, depending on each store’s inventory requirements.

All of our properties are covered by all-risk and liability insurance, which we believe is customary for the industry.

We believe that these properties, taken as a whole, are generally well-maintained, and are adequate for current and reasonably foreseeable business needs. We also believe that substantially all of our properties are being utilized to a significant degree.

Legal proceedings

Prohormone products

New York Action.  On July 25, 2002, a putative class-action lawsuit was filed against Vitamin World, Inc., alleging that Vitamin World engaged in deceptive trade practices and false advertising with respect to the sale of certain prohormone supplements and that plaintiffs were therefore entitled to equitable and monetary relief pursuant to the New York General Business Law. Similar complaints were filed against other companies in the vitamin and nutritional supplement industry. The Court has not yet certified a class. Vitamin World has filed a pending motion for summary judgment seeking the dismissal of all claims and an opposition to plaintiff’s motion for class certification. We have defended vigorously this action. Until the Court rules on these pending motions, no determination can be made at this time as to its likely final outcome, nor can its materiality be accurately ascertained.

California Action.  On July 25, 2002, a putative consumer class-action was filed in California state court against Met-Rx Substrate Technology, Inc., a subsidiary of Rexall Sundown, claiming that the advertising and marketing of certain prohormone supplements were false and misleading, or alternatively, that the prohormone products contained ingredients that were controlled substances under California law. Plaintiffs seek equitable and monetary relief. On June 18, 2004, this case was consolidated with several other nationwide class-action cases brought against other companies relating to the sale of products containing androstenediol, one of the prohormones contained in the Met-Rx products. The consolidated proceedings have recently been assigned to a judge for further pretrial proceedings. No trial date has been set, the Court has not yet certified a class and the matter is currently in discovery. We have defended vigorously against the claims asserted. Because this action is still in the early stages, no determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

New Jersey Action.  In March 2004, a putative class-action lawsuit was filed in New Jersey against Met-Rx Substrate Technology, Inc., claiming that the advertising and marketing of certain prohormone supplements were false and misleading and that plaintiff and the putative class of New Jersey purchasers of these products were entitled to damages and injunctive relief.

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Because these allegations are virtually identical to allegations made in a putative nationwide class-action previously filed in California, we moved to dismiss or stay the New Jersey action pending the outcome of the California action. The motion was granted, and the New Jersey action is stayed at this time.

Florida Action.  In July 2002, a putative class-action lawsuit was filed in Florida against MET-Rx USA, Inc., a subsidiary of Rexall Sundown, claiming that the advertising and marketing of certain prohormone supplements were false and misleading, that the products were ineffective, and alternatively, that the products were anabolic steroids whose sale violated Florida law. We have moved to dismiss the complaint for failure to state a cause of action. This case has been largely inactive since its filing. Plaintiff seeks equitable and monetary relief. Because this action is in its early stages, no determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

Nutrition Bars

Rexall and certain of its subsidiaries are defendants in a class-action lawsuit brought in 2002 on behalf of all California consumers who bought various nutrition bars. Plaintiffs allege misbranding of nutrition bars and violations of California unfair competition statutes, misleading advertising and other similar causes of action. Plaintiffs seek restitution, legal fees and injunctive relief. We have defended vigorously this action. The Court vacated the July 6, 2005 status conference and set a further conference for January 6, 2006. Until that time, the case is stayed for all purposes. Based upon the information available at this time, we believe that our accrual is adequate for the exposure in the nutrition bar litigation. However, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.

Shareholder Litigation

During the period from June 24, 2004 through September 3, 2004, six separate shareholder class-actions were filed against us and certain of our officers and directors in the U.S. District Court for the Eastern District of New York, on behalf of shareholders who purchased shares of our common stock between February 9, 2004 and July 22, 2004 (the potential “Class Period”). The actions allege that we failed to disclose material facts during the Class Period that resulted in a decline in the price of our stock after June 16, 2004 and July 22, 2004, respectively. The Court consolidated the six class-actions in March 2005 and appointed lead plaintiffs and counsel. The lead plaintiffs filed a consolidated amended complaint alleging an amended class period from November 10, 2003 to July 22, 2004. Along with the officers and directors, we intend to file a motion to dismiss the action.

In addition to the shareholder class-actions, two shareholder derivative actions were filed in the Eastern District of New York, on July 9, 2004 and August 26, 2004, respectively, against certain of our officers and directors, and we are named as a nominal defendant. The two derivative actions, which have been consolidated, are predicated upon the allegations set forth in the shareholder class-actions and allege improper sales of our shares by certain officers and directors. On December 27, 2004, the court granted our motion to dismiss this complaint. The plaintiffs have filed an appeal.

An additional shareholder derivative action was filed on October 7, 2004 in the Supreme Court of the State of New York, Suffolk County, alleging breaches of fiduciary duties by our

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individual directors and officers, and we are named as a nominal defendant. The derivative claims are predicated upon the same allegations as in the Eastern District consolidated derivative action and upon claims arising from our acquisition of Rexall Sundown, Inc. in July 2003. The New York derivative action is currently stayed by agreement of the parties. We, our named officers and our directors intend to file a motion to dismiss or further stay the New York derivative action at the appropriate procedural time.

Also, a purported shareholder of ours delivered a demand that our board of directors commence a civil action against certain of our officers and directors based on certain of the allegations described above. Our board of directors, based on the investigation and recommendation of a special committee of the Board, determined not to commence any such lawsuit. On or about April 28, 2005, a second state court derivative action was filed in the Supreme Court of the State of New York, Suffolk County, by this purported shareholder alleging wrongful rejection of his demand and breaches of fiduciary duties by some of our individual directors and officers, and we are named as a nominal defendant. This derivative complaint is predicated upon the same allegations as the dismissed Eastern District consolidated derivative action. This derivative action is currently stayed by agreement of the parties. Along with the named officers and directors we intend to file a motion to dismiss or further stay this derivative action at the appropriate procedural time.

We and the named officers and directors believe that these suits are without merit and intend to defend vigorously these actions. Given the early stages of the proceedings, however, no determination can be made at this time as to the final outcome of these actions, nor can their materiality be accurately ascertained. We maintain policies of directors’ and officers’ professional liability insurance.

Regulatory Matters

In June 2003, we received a letter of inquiry from the FTC concerning our marketing of a certain weight loss product, as well as the marketing of Royal Tongan Limu dietary supplement by our subsidiary, Dynamic Essentials (DE), Inc, or DEI. We ceased all DEI operations and terminated all DEI employees in September 2003. In March 2005, FTC Staff recommended to the FTC Commissioners that a civil penalty action be brought against us alleging our violation of its 1995 FTC consent decree. We have discussed the FTC Staff’s recommendation with the FTC Commissioners and the Department of Justice. Based upon the information available at this time, we believe that our accrual is adequate for the exposure in this matter.

In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability claims) arise in the ordinary course of our business. See “—Government regulation” for a discussion of these matters, including a discussion of a likely civil action that the FTC staff has recommended to the FTC Commissioners relating to a weight loss product and to the marketing of Royal Tongan Limu by one of our subsidiaries. We believe that such other inquiries, claims, suits and complaints would not have a material adverse effect on our consolidated financial condition or results of operations, if adversely determined against us.

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