We recognized a $2.1 million unrealized depreciation in a marketable equity security during 2002, offset by an unrealized foreign currency gain of $0.3 million, compared to a $2.1 million unrealized appreciation in a marketable equity security during 2001, offset by an unrealized foreign currency exchange loss of $0.4 million.

Liquidity and Capital Resources

      At June 30, 2004, we had $47.6 million in cash and cash equivalents and $244.5 million in working capital compared with $23.8 million in cash and cash equivalents and $132.4 million in working capital at June 30, 2003. The $112.1 million increase in working capital was primarily driven by the new debt structure, which eliminated the short-term intercompany debt payments due to Numico, and reductions in taxes payable and accounts payable.

Cash Provided by Operating Activities

      Historically, we have funded our operations through internally generated cash. Cash provided by operating activities was $25.8 million and $75.0 million in the six months ended June 30, 2004 and June 30, 2003, respectively. During the six months ended June 30, 2004, inventory increased $36.9 million, largely due to an increase in inventory from new products and raw materials. Accrued liabilities decreased $16.1 million primarily due to $12.1 million in change in control and retention payments made in the six months ended June 30, 2004, which reduced the liability accordingly and incentive payouts of $4.4 million.

      Cash provided by operating activities was $97.6 million, $111.0 million and $75.8 million during the years ended December 31, 2003, 2002, and 2001, respectively. The primary reason for the change in each year was changes in working capital accounts. Receivables decreased in 2003 due to the receipt of $134.8 million in January 2003 from legal settlement proceeds relating to raw material pricing litigation, offset by an increase in receivables of $12.7 million due to the recording of a purchase price adjustment due from Numico related to the Acquisition, and a decrease in receivables of $70.6 million due from Numico, which was generated from periodic cash sweeps to Numico since the beginning of 2003. Receivables increased $132.6 million in 2002 primarily due to the recording of a raw material pricing settlement receivable of $134.8 million. Accounts payable increased in 2002 due to the recording of various amounts due from General Nutritional Companies, Inc. to Numico, and an affiliated purchasing subsidiary, Nutraco. In 2001, inventory decreased $46.3 million and accounts payable decreased by $48.2 million. Goodwill and intangible asset amortization was $75.9 million for the year, as SFAS No. 142 was not adopted until January 1, 2002.

Cash Used in Investing Activities

      We used cash from investing activities of approximately $8.2 million and $14.0 million for the six months ended June 30, 2004 and June 30, 2003, respectively. Capital expenditures, primarily for improvements at company-owned stores, were our largest use of cash in the periods presented. During the six months ended June 30, 2004, we received cash from Numico, our former parent, of $15.7 million for a working capital adjustment to the Acquisition purchase price, which was previously recognized as a contingent adjustment to the purchase price. Also during the six months ended June 30, 2004, we paid

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Cash Used in Financing Activities

      We used cash in financing activities of approximately $3.7 million and $76.0 million for the six months ended June 30, 2004 and June 30, 2003, respectively. In the first six months of 2004, our parent issued common stock and received proceeds of $1.6 million, which our parent invested in us, we used $1.9 million to pay down debt on our term loan facility and mortgage, and had a decrease of $3.1 million in cash overdrafts. In the first six months of 2003, we used $75.0 million to pay down debt to related parties, and $0.4 million to pay down debt to third parties.

      We generated cash from financing activities of approximately $668.4 million for the twelve months ended December 31, 2003. The primary use of cash in the period ended December 4, 2003 was principal payments on debt of Numico, of which we were a guarantor. In the 27 days ended December 31, 2003, the primary source of cash was from borrowings under our senior credit facility of $285.0 million, proceeds from the issuance of shares of our parent’s common stock of $177.5 million and of preferred stock of $100.0 million, and proceeds from our issuance of the old notes of $215.0 million. We used cash in financing activities of approximately $44.3 million and $21.6 million for the twelve months ended December 31, 2002 and 2001, respectively, primarily to repay debt to related parties. We generated $62.3 million of cash through borrowings from related parties in 2001.

      In connection with the Acquisition, we entered into a senior credit facility, consisting of a $285.0 million term loan facility and a $75.0 million revolving credit facility. We borrowed the full amount under the term loan facility in connection with the closing of the Acquisition. Borrowings under the senior credit facility bear interest at a rate per annum of equal to (1) the higher of (x) the prime rate and (y) the federal funds effective rate, plus 0.5% per annum, or (2) the Eurodollar rate, plus in each case, an applicable margin, and, in the case of revolving loans, such rates per annum may be decreased if our leverage ratio is decreased. In addition, we are required to pay an unused commitment fee equal to 0.5% per year. The term loan facility matures on December 5, 2009 and the revolving credit facility matures on December 5, 2008. The revolving credit facility allows for $50 million to be used as collateral for outstanding letters of credit, of which $9.4 million was used at June 30, 2004, leaving $65.6 million of this facility available for future borrowing. This facility contains customary covenants including financial tests (including maximum total leverage, minimum fixed charge coverage ratio and maximum capital expenditures) and places certain other limitations on us concerning our ability to incur additional debt, guarantee other obligations, grant liens on assets, make investments, acquisitions or mergers, dispose of assets, make optional payments or modifications of other debt instruments, and pay dividends or other payments on capital stock. See note 9 of our consolidated financial statements included elsewhere in this prospectus. We are seeking an amendment to our senior credit facility to obtain a lower interest rate and additional flexibility under our restricted payments covenant; however, there can be no assurance that we will obtain this amendment.

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      On December 5, 2003, we issued $215.0 million aggregate principal amount of old notes in connection with the Acquisition. The notes mature in 2010 and bear interest at the rate of 8 1/2% per annum. In addition, our equity sponsor and certain of our directors, members of our management and other employees made an equity contribution of $277.5 million in exchange for 29,566,666 shares of our parent’s common stock and, in the case of our equity sponsor, 100,000 shares of our parent’s Series A preferred stock. The proceeds of the equity contribution were contributed to us to fund a portion of the Acquisition price. In addition, our parent sold shares of its common stock for $200,000 to one of our new outside directors shortly after consummation of the Acquisition and subsequently sold shares of its common stock for approximately $1.7 million to certain members of our management. The proceeds of all of such sales were contributed by our parent to us.

      We expect to fund our operations through internally generated cash and, if necessary, from borrowings under our $75.0 million revolving credit facility. We expect our primary uses of cash in the near future will be debt service requirements, working capital requirements and capital expenditures. We anticipate that cash generated from operations, together with amounts available under our revolving credit facility, will be sufficient to meet our future operating expenses, capital expenditures and debt service obligations during the next twelve months. However, our ability to make scheduled payments of principal on, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend on our future operating performance which will be affected by general economic, financial and other factors beyond our control.

Capital Expenditures

      Capital expenditures were $10.2 million and $15.3 million during the six months ended June 30, 2004, and June 30, 2003, respectively. Capital expenditures were $32.8 million, $51.9 million and $29.2 million in 2003, 2002, and 2001, respectively. The primary use of cash in each year was for improvements to our retail stores, and on-going maintenance and improvements of our manufacturing facility. During 2002, we completed a $23.5 million store reset and upgrade program, $6.1 million of which was funded by our franchisees. Of the $17.4 million paid by us, $13.9 million was capitalized and $3.5 million was expensed. As of June 30, 2004, we expected our total store-related maintenance capital expenditures to be approximately $15.0 million and our total capital expenditures to be approximately $31.0 million for 2004.

Contractual Obligations

      The following table summarizes our future minimum non-cancelable contractual obligations at June 30, 2004.

Off-Balance Sheet Arrangements

      As of June 30, 2004 and 2003 and December 31, 2003, 2002 and 2001, we had no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet

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      We have a balance of unused advertising barter credits on account with a third-party advertising agency. We generated these barter credits by exchanging inventory with a third-party barter vendor. In exchange, the barter vendor supplied us with advertising credits. We did not record a sale on the transaction as the inventory sold was for expiring products that were previously fully reserved for on our balance sheet. In accordance with APB 29, a sale is recorded based on either the value given up or the value received, which ever is more easily determinable. The value of the inventory was determined to be zero, as the inventory was fully reserved. Therefore, these credits were not recognized on the balance sheet and are only realized when we advertise through the bartering company. The credits can be used to offset the cost of cable advertising. As of June 30, 2004, December 31, 2003 and December 31, 2002, the available credit balance was $12.0 million, $16.6 million and $18.8 million, respectively. The barter contract is effective through March 2005, with renewable extensions.

Effects of Inflation

      Inflation generally affects us by increasing costs of raw materials, labor and equipment. We do not believe that inflation had any material effect on our results of operations in the periods presented in our financial statements.