NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

1. Basis of Presentation

NBTY, Inc. and subsidiaries are referred to herein collectively as “we”, “our”, “us”, “NBTY”, or the “Company”. We have prepared these unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles applicable to interim financial information and on a basis that is consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006 (“2006 Form 10-K”). In our opinion, these financial statements reflect all adjustments (including normal recurring items) necessary for a fair presentation of our results for the interim periods presented. These unaudited condensed consolidated financial statements do not include all information or notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in our 2006 Form 10-K. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. Our most significant estimates include: sales returns and other allowances; inventory valuation and obsolescence; allowance for doubtful accounts; valuation and recoverability of long-lived assets; income taxes; and accruals for the outcome of current litigation.

Significant Customers and Concentration of Credit Risk

Financial instruments which potentially subject us to credit risk consist primarily of cash and cash equivalents (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts), investments and trade accounts receivable. We mitigate our risk by investing in or through major financial institutions. At June 30, 2007, our investments consisted of auction rate securities, which were classified as available-for-sale investments and reported at fair value (which approximates cost). At June 30, 2007, included in our auction rate securities were fully insured, Aaa-rated New York State Agency securities of approximately $91,000.

We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. Collections and payments from customers are continuously monitored. We maintain an allowance for doubtful accounts, which is based upon historical experience as well as specific customer collection issues that have been identified. While such bad debt expenses have historically been within expectations and allowances established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. If the financial condition of one or more of our customers were to deteriorate, we may require additional allowances.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

The following individual customers accounted for the following percentages of the Wholesale/US Nutrition segment’s net sales for the three and nine months ended June 30, 2007 and 2006, respectively:

	Three months ended June 30,						Nine months ended June 30,
	2007			2006			2007			2006
Customer A		9	%		13	%		8	%		12	%
Customer B		18	%		18	%		18	%		16	%

Customer A is primarily a supplier to Customer B. Therefore, the loss of Customer B would likely result in the loss of a significant amount of net sales to Customer A. While no one customer represented, individually, more than 10 percent of our consolidated net sales for the three and nine months ended June 30, 2007 and 2006, the loss of any 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 customer accounted for 10% or more of the Wholesale/US Nutrition segment’s gross accounts receivable as of June 30, 2007 and September 30, 2006, respectively:

	June 30,			September 30,
	2007			2006
Customer B		15	%		12	%

Accounts Receivable Reserves and Allowances

Accounts receivable are presented net of the following reserves and allowances at June 30, 2007 and September 30, 2006:

	June 30,		September 30,
	2007		2006
Allowance for doubtful accounts	$	8,733		$	10,361
Allowance for sales returns	10,226			10,778
Promotional program incentive allowance	26,983			30,439
	$	45,942		$	51,578

Assets Held for Sale

During March 2007 we made a decision to sell the land and building we own located in Augusta, Georgia. We anticipate that this sale will be completed by March 2008. As a result, the carrying value of the land and building of approximately $12,900 (which approximates its fair value less costs to sell) was transferred from property, plant and equipment and is classified as held for sale within prepaid expenses and other current assets in the accompanying balance sheet at June 30, 2007.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Supplemental Disclosure of Cash Flow Information

	For the nine months
	ended June 30,
	2007			2006
Cash interest paid (net of capitalized interest of $402 and $810, respectively)	$	14,519		$	17,147
Cash income taxes paid (net of refunds of $480 and $9,822, respectively)	$	68,990		$	22,290
Capital lease obligations	$	333		$	811
Property, plant and equipment additions included in accounts payable	$	1,420		$	444
Non-cash investing and financing information:
Acquisitions accounted for under the purchase method:
Fair value of assets acquired	$	44,922		$	—
Liabilities assumed	(7,870		)	—
Less: Cash acquired	(47		)	—
Net cash paid	$	37,005		$	—

Recent Accounting Developments

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and other eligible items at fair value when the items are not otherwise currently required to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Companies electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. Companies electing the fair value option are required to distinguish, on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. SFAS 159 will be effective as of the beginning of the first fiscal year that begins after November 15, 2007. We will adopt SFAS 159 on October 1, 2008. The impact of the adoption of SFAS 159 will be dependent on the extent to which we choose to elect to measure eligible items at fair value.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and enhances disclosures about fair value measurements. SFAS 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. We will adopt SFAS 157 on October 1, 2008. We are currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

uncertainty in tax positions and requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. We will adopt the provisions of FIN 48 on October 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 in our financial statements. We do not anticipate the adoption will have a significant impact on our consolidated financial position or results of operations.

2. Acquisitions

We account for acquisitions under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” Under the purchase method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Any excess of the purchase price over their estimated fair values is recorded as goodwill. The fair value assigned to the tangible and intangible assets acquired and liabilities assumed is based upon estimates and assumptions, including a valuation.

Fiscal 2007 Acquisitions

The Ester-C Company (formally known as Zila Nutraceuticals, Inc.)

On October 2, 2006, we acquired 100% of the stock of Zila Nutraceuticals, Inc., a subsidiary of Zila, Inc. Once acquired, we changed the name of Zila Nutraceuticals, Inc. to The Ester-C Company (“Ester-C”). Ester-C manufactures and markets Ester-C®, which is known throughout multiple markets including health food stores and mass market retailers. This acquisition represents an opportunity for us to enhance our presence in key markets. The purchase price for Ester-C was $37,500 in cash and up to a $3,000 contingent cash payment which is based upon EBITDA (as defined in the purchase agreement) of Ester-C during the one-year period following the closing. In addition, the purchase price was subject to a post-closing adjustment based on the final working capital. During March 2007, we received a payment of $1,214 in settlement of the final working capital adjustment. We also incurred approximately $766 of direct transaction costs for a total purchase price of approximately $37,052, subject to any contingent cash payment noted above. The goodwill associated with this acquisition is deductible for tax purposes. The purchase price was paid out of cash on hand. We are in the process of finalizing the allocation of the purchase price to the assets acquired and liabilities assumed.

3. Investments

At June 30, 2007, investments consisted of auction rate securities, which are long-term variable rate bonds tied to short-term interest rates that are reset through a “dutch auction” process which occurs every 7 to 35 days. These investments are recorded at fair value; any unrealized gains/losses are included in other comprehensive income, unless a loss is determined to be other than temporary. Despite the long-term nature of their stated contractual maturities, there is a ready liquid market for these securities based on the interest rate reset mechanism. We classify such securities as current assets in the accompanying balance

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

sheets because we have the ability and intent to sell these securities as necessary to meet our current liquidity requirements. As of June 30, 2007, there were no unrealized holding gains or losses.

Investment income included in ‘‘Miscellaneous, net’’ in the statements of income was $2,077 and $1,360 for the three months ended June 30, 2007 and 2006, respectively, and $3,995 and $2,430 for the nine months ended June 30, 2007 and 2006, respectively.

4. Inventories

The components of inventories were as follows:

	June 30,			September 30,
	2007			2006
Raw materials	$	89,977			$	92,536
Work-in-process	10,442				11,409
Finished goods	297,525				261,570
Valuation and obsolescence reserves	(13,056		)		(11,019		)
Total	$	384,888			$	354,496

5. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess purchase price over the fair value of identifiable net assets of companies acquired. Goodwill and indefinite lived assets acquired in a business combination are not amortized, but instead tested for impairment at least annually. We test goodwill and indefinite lived intangibles for impairment annually as of September 30, the last day of our fourth fiscal quarter, unless an event occurs that would indicate the value may be impaired at an interim date.

The changes in the carrying amount of goodwill by segment for the nine month period ended June 30, 2007, were as follows:

	Wholesale / US Nutrition			European Retail		Direct Response/ E-Commerce			Consolidated
Balance at September 30, 2006		$	73,253	$	147,509		$	15,197		$	235,959
Acquisition of Ester-C		3,643		—			—			3,643
Foreign currency translation		181		10,184			—			10,365
Balance at June 30, 2007		$	77,077	$	157,693		$	15,197		$	249,967

We are in the process of finalizing the allocation of the purchase price to the assets acquired and liabilities assumed for the acquisition of Ester-C. Accordingly, the goodwill amount associated with this acquisition is preliminary.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

We are in a dispute with the seller of SISU, Inc., which we acquired in June 2005, with respect to the calculation of the final working capital adjustment. Although we do not believe the resolution of this dispute will have a material impact on our financial position, upon such resolution, final allocations to the acquired assets and liabilities could result in future adjustments to goodwill and actual results may differ from those presented herein.

Intangible Assets

Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives (not exceeding 20 years). The carrying amounts of intangible assets as of June 30, 2007 and September 30, 2006 were as follows:

	June 30, 2007					September 30, 2006
	Gross					Gross					Amortization
	carrying		Accumulated			carrying		Accumulated			period
	amount		amortization			amount		amortization			(years)
Definite lived intangible assets:
Brands	$	98,239		$	15,170	$	82,675		$	11,449		20
Customer lists	62,071			35,162		62,025			32,278			2 - 15
Private label and customer relationship	40,285			4,922		34,211			3,167			10 - 20
Trademarks and licenses	18,181			6,043		17,146			5,123			2 - 20
Covenants not to compete	3,051			2,803		3,034			2,705			3 - 5
	221,827			64,100		199,091			54,722
Indefinite lived intangible asset:
Trademark	1,800			—		1,800			—
Total intangible assets	$	223,627		$	64,100	$	200,891		$	54,722

In connection with the acquisition of Ester-C, definite-lived intangible assets relating to brands increased $15,000 and customer relationships increased $5,300 from September 30, 2006 to June 30, 2007.

Amortization expense of definite lived intangible assets is included in “Selling, general and administrative” expense in the statements of income. Amortization for the three months ended June 30, 2007 and 2006 was approximately $3,008 and $2,743, respectively. Amortization for the nine months ended June 30, 2007 and 2006 was approximately $8,990 and $8,444, respectively.

Assuming no changes in our definite lived intangible assets, estimated amortization expense for each of the five succeeding fiscal years is as follows:

For the fiscal year ending September 30,
2007	$	12,013
2008	$	12,637
2009	$	11,665
2010	$	11,562
2011	$	11,521

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

6. Impairments

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), carrying values are reviewed for impairment whenever events or changes in circumstances indicate that the assets’ carrying values may not be recoverable. In order to determine if a write down is necessary, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. We consider a history of cash flow losses on a store by store basis to be a primary indicator of potential impairment.

During the nine months ended June 30, 2007 and 2006, we evaluated, for an impairment review, certain retail stores that had reached a certain level of maturity and were sustaining operating losses. During the three months ended June 30, 2007 and 2006, we recognized impairment charges of $550 and $135, respectively. During the nine months ended June 30, 2007 and 2006, we recognized impairment charges of $1,134 and $2,405, respectively. These impairment charges related primarily to leasehold improvements and furniture and fixtures for North American Retail operations and were included in “Selling, general and administrative” expense in the statements of income.

In March 2006 we decided to discontinue our Carb Solutions trademarked brand (which was acquired as part of the acquisition of Rexall Sundown in 2003), due to continued difficult market conditions experienced in our low carb product line. Since the brand related to this trademark had virtually no future undiscounted cash flow to support its carrying value, we wrote off the net carrying value of the Carb Solutions trademarked brand of $10,450 during the nine months ended June 30, 2006.

7. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities were as follows:

	June 30,		September 30,
	2007		2006
Accrued compensation and related taxes	$	23,706		$	26,247
Income taxes payable	11,265			22,268
Accrued purchases	14,281			13,379
Litigation	27,732			12,294
Other	56,750			53,580
	$	133,734		$	127,768

8. Long-Term Debt

Revolving Credit Facility (“the facility”)

On November 3, 2006, we entered into a revolving credit facility (“the facility”) with JP Morgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents. The facility provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under our prior credit agreement (which consisted solely of commitment fees since we had previously repaid all amounts borrowed under the prior credit

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the facility, our prior credit agreement was terminated. There have been no borrowings under the facility to date. The terms and requirements of the facility are substantially the same as the prior credit agreement. Our obligations under the facility are secured by substantially all of our assets and are guaranteed by certain of our subsidiaries, in each case to the extent set forth in the Guarantee and Collateral Agreement (the “Guarantee”) that was entered into on November 3, 2006.

Interest rates charged on borrowings 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. We are required to pay a commitment fee, which varies between .20% and .375% per annum, depending on our ratio of consolidated indebtedness to consolidated Adjusted EBITDA, on any unused portion of the facility. The facility defines Adjusted EBITDA as net income, excluding the aggregate amount of all non-cash losses reducing net income (excluding any non-cash losses that results in an accrual of a reserve for cash charges in any future period and the reversal thereof), plus interest, taxes, depreciation and amortization. Virtually all of our assets are collateralized under the facility. Under the facility, we are obligated to maintain various financial ratios and covenants that are typical for such facilities. We were in compliance with all financial covenants under the facility as of June 30, 2007.

9. Litigation Summary and Indemnification of Officers and Directors

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 the plaintiffs were therefore entitled to equitable and monetary relief under the New York General Business Law. Similar complaints were filed against other companies in the vitamin and nutritional supplement industry. By Decision and Order filed July 18, 2006, the Court granted Vitamin World’s motion for summary judgment and dismissed all claims. The plaintiffs have appealed.

California Action

On July 25, 2002, a putative consumer class-action lawsuit was filed in California state court against MET-Rx USA, Inc. (“MET-Rx”), an indirect subsidiary of Rexall Sundown, Inc. (“Rexall”), 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 coordinated with several other class-action cases brought against other companies relating to the sale of products containing androstenediol, one of the prohormones contained in MET-Rx products. The coordinated proceedings have been assigned to a coordination 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.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

New Jersey Action

In March 2004, a putative class-action lawsuit was filed in New Jersey against MET-Rx, 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. 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, 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. Plaintiff seeks equitable and monetary relief. This case has been largely inactive since its filing. 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 this action vigorously. In December 2006, while Rexall’s and the other defendants’ renewed motion for judgment on the pleadings was pending, the Court again stayed the case for all purposes, pending rulings on relevant cases before the California Supreme Court. Because it is unclear when the Supreme Court will issue rulings in these cases, Rexall cannot estimate how long the case will be stayed. Based upon the information available at this time, 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—Class Actions Settlement Agreed Upon; Awaiting Court Approval

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 (the “Court”), 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 alleged 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 plaintiff and counsel. The lead plaintiff 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 filed a motion to dismiss the action. The motion was denied on May 1, 2006. The parties entered into extensive document discovery, during which the Court certified the class to consist of

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

shareholders who purchased shares of our common stock during the period from November 10, 2003 to July 22, 2004 (the “Class”).

Following a mediation on February 15, 2007, the parties agreed to a proposed settlement of the class action claims. Under the terms of the proposed settlement, all the class action claims will be dismissed with prejudice and a full release will be given to the Company and its officers and directors, including all defendants named in the consolidated actions. The total amount to be paid to the Class in settlement of the claims will be paid entirely by our directors’ and officers’ liability insurers. In the settlement, we and the individual defendants deny any violation of law, and have agreed to the settlement to eliminate the uncertainties, distractions and expense of further litigation. On April 17, 2007, the lead plaintiff filed with the Court the proposed settlement, as well as an application for its preliminary approval, for notice to the Class, and for a settlement hearing. The Court granted preliminary approval to the settlement on May 2, 2007, directed that notice be given by mail and publication to the Class, and scheduled a settlement hearing for August 9, 2007. The Court had also directed that any objections to the settlement and any requests to opt-out from the Class must be served and filed by July 19, 2007. No objections to the settlement and no requests to opt-out from the Class have been received to date.

A purported shareholder of the Company delivered a demand in July 2004 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 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. We are named as a nominal defendant. This derivative complaint is predicated upon the same allegations as a previously-dismissed Eastern District consolidated derivative action. Along with the named officers and directors, we filed a motion to dismiss. On January 3, 2007, the Court directed plaintiff to serve and file within 90 days an amended complaint with allegations sufficient to cure deficiencies in plaintiff’s prior complaint, observing that plaintiff could not have satisfied the requirements to state a claim under Delaware law at the time plaintiff originally filed the derivative complaint. Plaintiff filed a motion to compel discovery from the defendants and the Company prior to filing an amended pleading, and we, together with the defendants, filed a cross-motion for a protective order that plaintiff is not entitled to such discovery. Those motions were initially addressed by the Court on May 23, 2007 and were adjourned to September 6, 2007. Despite the pendency of those motions, Plaintiff filed an amended complaint on April 20, 2007. Defendants moved to dismiss the amended complaint for failure to state a claim. Plaintiff has not yet submitted opposition to that motion, and the Court has not yet set a date to hear that motion.

We and our named officers and directors believe these suits are without merit and have vigorously defended these actions. Given the 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’ personal liability insurance.

In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability and intellectual property claims) arise in the ordinary course of our business. We believe

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

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.

Indemnification of Officers and Directors

We are incorporated under the laws of Delaware. Section 145(a) of the Delaware General Corporation Law (the “DGCL”) provides that a corporation may indemnify officers and directors of the corporation against expenses incurred by them if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, if they had no reasonable cause to believe that their conduct was unlawful.

As permitted by the DGCL, our certificate of incorporation provides for the indemnification to the full extent permitted by Section 145 of the DGCL of the persons who may be indemnified pursuant thereto. Further, we have provided in our certificate of incorporation that a director of our corporation shall not be personally liable to the corporation or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

Finally, our directors and officers are covered by directors’ and officers’ insurance policies maintained by the Company.

10. Income Taxes

Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for the three months ended June 30, 2007 was 33.5%, compared to 27.0% for the prior comparable period. The effective income tax rate for the nine months ended June 30, 2007 was 32.0%, compared to 27.0% for the prior comparable period. The fiscal year 2007 tax rate is lower than the statutory rate due to our decision to reinvest a portion of our foreign earnings in a lower tax jurisdiction, as well as our ability to partially utilize our prior year state and local investment tax credits. The fiscal year 2006 tax rate is lower than the statutory rate primarily due to the Foreign Earnings Repatriation (“FER”) provision in the American Jobs Creation Act of 2004. For fiscal 2006, we repatriated foreign earnings at a more beneficial tax rate under the FER provision, which resulted in an approximate 7.4% reduction in the effective rate for the 2006 fiscal year.

11. Employee Benefits Plans

We maintain defined contribution benefit plans which collectively cover substantially all full-time U.S. based employees. The defined contribution benefit plans are funded through employer contributions to the Employee Stock Ownership Plan and through employees’ contributions and employer’s matching contributions to the 401(k) plan. The accompanying financial statements reflect contributions to these plans of approximately $1,099 and $1,171 for the three months ended June 30, 2007 and 2006, respectively, and $2,718 and $3,581 for the nine months ended June 30, 2007 and 2006, respectively.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Certain of our international subsidiaries (mainly in the U.K.) have company sponsored defined contribution plans to comply with local statutes and practices. The accompanying financial statements reflect contributions to these plans by such subsidiaries in the approximate amount of $393 and $349 and for the three months ended June 30, 2007 and 2006, respectively, and $1,166 and $1,451 for the nine months ended June 30, 2007 and 2006, respectively.

12. Net Income Per Share

Basic net income per share is based on the weighted average number of common shares outstanding during the three and nine month periods ended June 30, 2007 and 2006. Diluted net income per share includes the dilutive effect of outstanding stock options, which resulted in a dilutive effect of 2,247 and 1,948 shares for the three months ended June 30, 2007 and 2006, respectively, and 2,275 and 1,884 shares for the nine months ended June 30, 2007 and 2006, respectively. There were no outstanding stock options at June 30, 2007 and 2006, respectively, that would have been anti-dilutive in the calculation of dilutive net income per share.

13. Comprehensive Income

Comprehensive income includes net income and other gains and losses, net of tax, affecting shareholders’ equity that, under generally accepted accounting principles, are excluded from net income. Comprehensive income for the three and nine months ended June 30, 2007 and 2006 was as follows:

	For the three months ended June 30,					For the nine months ended June 30,
	2007		2006			2007		2006
Net income, as reported	$	51,226	$	29,901		$	159,435	$	74,122
Unrealized holding gains (losses)	4		—			8		(1		)
Interest rate swap valuation adjustments	—		(205		)	—		40
Foreign currency translation adjustments	4,646		12,902			13,715		9,909
Total comprehensive income	$	55,876	$	42,598		$	173,158	$	84,070

The change in foreign currency translation adjustment relates primarily to our investment in European subsidiaries and fluctuations in exchange rates between local currencies and the U.S. Dollar.

During the three and nine months ended June 30, 2007, we recorded an increase in our deferred tax liability of $2,921 and $8,622, respectively, relating to other comprehensive income earned during the period.

During the three and nine months ended June 30, 2006, we recorded an increase in our deferred tax liability of $8,111 and 6,230, respectively, relating to other comprehensive income earned during this period.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

14. Segment Information

We are organized by sales segments on a worldwide basis. Our management reporting system evaluates performance based on a number of factors; however, the primary measures of performance are the net sales, gross profit and income or loss from operations (prior to corporate allocations) of each segment, as these are the key performance indicators that we review. Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to: human resources, legal, finance, IT, and various other corporate level activity related expenses. Such unallocated expenses remain within corporate. Corporate also includes our manufacturing assets and, accordingly, certain items associated with these activities remain unallocated in the corporate segment. The European Retail operations are evaluated excluding the impact of any intercompany transfer pricing.

All of our products fall into one or more of these four segments:

· Wholesale / US Nutrition—This segment is comprised of several divisions, each targeting specific market groups which include wholesalers, distributors, supermarket and drug store chains, pharmacies, health food stores, bulk and international customers.

· North American Retail—This segment generates revenue through its 460 owned and operated Vitamin World stores selling proprietary brand and third-party products and through its Canadian operation of 85 owned and operated Le Naturiste stores.

· European Retail—This segment generates revenue through its 504 Holland & Barrett stores, 31 GNC stores in the UK, 69 DeTuinen stores in the Netherlands and 19 Nature’s Way stores in Ireland. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees.

· Direct Response/E-Commerce—This segment generates revenue through the sale of proprietary brand and third-party products primarily through mail order catalog and the Internet. Catalogs are strategically mailed to customers who order by mail, internet, or by phone.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

The following table represents key financial information of our business segments:

	Wholesale / US Nutrition			North American Retail			European Retail		Direct Response/ E-Commerce			Corporate/ Manufacturing				Consolidated
*For the three months ended June 30, 2007:*
Net sales		$	248,177	$	55,666		$	152,688		$	46,837		$	—			$	503,368
Income (loss) from operations		54,581		(45		)	36,562			11,787			(25,866		)		77,019
Depreciation and amortization		2,772		895			2,768			1,254			5,602				13,291
Capital expenditures		499		202			17,021			85			8,365				26,172
*For the three months ended June 30, 2006:*
Net sales		$	227,361	$	57,987		$	140,453		$	49,496		$	—			$	475,297
Income (loss) from operations		23,176		2,114			32,769			12,112			(23,535		)		46,636
Depreciation and amortization		2,479		1,098			3,037			1,254			6,072				13,940
Capital expenditures		454		551			1,409			30			3,187				5,631
*For the nine months ended June 30, 2007:*
Net sales		$	739,874	$	166,403		$	465,208		$	146,580		$	—			$	1,518,065
Income (loss) from operations		152,918		2,026			119,091			39,878			(73,881		)		240,032
Depreciation and amortization		8,331		3,029			8,333			3,782			18,562				42,037
Capital expenditures		1,098		520			21,389			1,010			17,910				41,927
*For the nine months ended June 30, 2006:*
Net sales		$	667,662	$	178,110		$	423,045		$	143,493		$	—			$	1,412,310
Income (loss) from operations		48,161		132			109,173			38,546			(74,996		)		121,016
Depreciation and amortization		7,609		3,696			8,331			3,790			18,558				41,984
Capital expenditures		1,538		1,890			4,101			1,166			18,102				26,797

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Net sales by location of customer were as follows:

	For the three months ended June 30,				For the nine months ended June 30,
	2007		2006		2007		2006
Net sales by location of customer
United States	$	303,723	$	294,488	$	917,308	$	870,942
United Kingdom	149,090		136,191		451,416		408,926
Holland	12,585		10,707		38,594		33,363
Ireland	5,298		4,506		15,774		12,632
Canada	7,603		7,374		24,065		23,963
Other foreign countries	25,069		22,031		70,908		62,484
Consolidated totals	$	503,368	$	475,297	$	1,518,065	$	1,412,310

Total assets by segment were as follows:

	June 30, 2007		September 30, 2006
Wholesale / US Nutrition	$	512,584		$	469,875
North American Retail	45,364			47,298
European Retail	412,495			312,973
Direct Response / E-Commerce	62,318			64,784
Corporate / Manufacturing	495,461			409,380
Consolidated totals	$	1,528,222		$	1,304,310

Approximately 35% and 34% of our net sales during the nine months ended June 30, 2007 and 2006 were denominated in currencies other than U.S. dollars, principally British Pounds, Euros and Canadian dollars. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on our results of operations.

Foreign subsidiaries accounted for the following percentages of total assets and total liabilities:

	June 30, 2007			September 30, 2006
Total Assets		31	%		28	%
Total Liabilities		13	%		19	%

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

15. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes

The 71¤8% Notes are guaranteed by all of our domestic subsidiaries, which are wholly-owned by the Company. These guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents:

(1) Condensed consolidating financial statements as of June 30, 2007 and September 30, 2006 and for the three and nine months ended June 30, 2007 and 2006 of (a) NBTY, Inc., the parent and issuer, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) the Company on a consolidated basis, and

(2) Elimination entries necessary to consolidate NBTY, Inc., the parent, with guarantor and non-guarantor subsidiaries.

The condensed consolidating financial statements are presented using the equity method of accounting for investments in wholly-owned subsidiaries. Under this method, the investments in subsidiaries are recorded at cost and adjusted for our share of the subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. This financial information should be read in conjunction with the consolidated financial statements and other notes related thereto.

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Balance Sheets

As of June 30, 2007

	Parent		Guarantor				Non-Guarantor
	Company		Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	7,921		—				$	66,062			$	(5,231	)		$	68,752
Investments	135,266			—				—				—				135,266
Accounts receivable, net	—			88,600				15,804				(7,485		)		96,919
Intercompany	—			326,157				602,691				(928,848		)		—
Inventories	—			298,727				94,132				(7,971		)		384,888
Deferred income taxes	—			25,924				766				—				26,690
Prepaid expenses and other current assets	16,000			21,798				18,044				—				55,842
Total current assets	159,187			761,206				797,499				(949,535		)		768,357
Property, plant and equipment, net	35,949			203,928				81,496				—				321,373
Goodwill	—			95,507				154,460				—				249,967
Other intangible assets, net	—			128,942				30,585				—				159,527
Other assets	—			9,723				19,275				—				28,998
Intercompany loan receivable	401,640			—				—				(401,640		)		—
Investments in subsidiaries	1,615,378			—				—				(1,615,378		)		—
Total assets	$	2,212,154		$	1,199,306			$	1,083,315			$	(2,696,553	)		$	1,528,222
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	756		$	190			$	—			$	—			$	946
Accounts payable	—			61,427				25,966				(5,231		)		82,162
Intercompany	928,848			—				—				(928,848		)		—
Accrued expenses and other current liabilities	—			119,167				22,052				(7,485		)		133,734
Total current liabilities	929,604			180,784				48,018				(941,564		)		216,842
Intercompany loan payable	—			—				401,640				(401,640		)		—
Long-term debt, net of current portion	190,612			143				19,229				—				209,984
Deferred income taxes	74,299			(3,521		)		4,550				—				75,328
Other liabilities	1,800			4,105				4,325				—				10,230
Total liabilities	1,196,315			181,511				477,762				(1,343,204		)		512,384
Commitments and contingencies
Stockholders’ equity:
Common stock	539			—				—				—				539
Capital in excess of par	142,025			390,285				301,271				(691,557		)		142,024
Retained earnings	830,495			627,510				322,667				(950,177		)		830,495
Accumulated other comprehensive income	42,780			—				(18,385		)		18,385				42,780
Total stockholders’ equity	1,015,839			1,017,795				605,553				(1,623,349		)		1,015,838
Total liabilities and stockholders’ equity	$	2,212,154		$	1,199,306			$	1,083,315			$	(2,966,553	)		$	1,528,222

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Balance Sheets

As of September 30, 2006

	Parent		Guarantor			Non-Guarantor
	Company		Subsidiaries			Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	59,966		$	9,385		$	20,454			$	—			$	89,805
Accounts receivable, net	—			72,932			16,222				—				89,154
Intercompany	—			165,124			643,531				(808,655		)		—
Inventories	—			284,717			76,729				(6,950		)		354,496
Deferred income taxes	—			25,923			713				—				26,636
Prepaid expenses and other current assets	—			25,221			17,040				—				42,261
Total current assets	59,966			583,302			774,689				(815,605		)		602,352
Property, plant and equipment, net	37,613			208,065			63,759				—				309,437
Goodwill	—			93,844			142,115				—				235,959
Other intangible assets, net	—			116,141			30,028				—				146,169
Other assets	—			10,354			39				—				10,393
Intercompany loan receivable	374,320			—			—				(374,320		)		—
Investments in subsidiaries	1,393,822			—			—				(1,393,822		)		—
Total assets	$	1,865,721		$	1,011,706		$	1,010,630			$	(2,583,747	)		$	1,304,310
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	608		$	131		$	17,921			$	—			$	18,660
Accounts payable	—			40,943			23,268				—				64,211
Intercompany	808,655			—			—				(808,655		)		—
Accrued expenses and other current liabilities	4,819			84,807			38,142				—				127,768
Total current liabilities	814,082			125,881			79,331				(808,655		)		210,639
Intercompany loan payable	—			—			374,320				(374,320		)		—
Long-term debt, net of current portion	190,805			240			—				—				191,045
Deferred income taxes	19,883			31,013			4,380				—				55,276
Other liabilities	1,519			3,179			3,220				—				7,918
Total liabilities	1,026,289			160,313			461,251				(1,182,975		)		464,878
Commitments and contingencies
Stockholders’ equity:
Common stock	538			—			—				—				538
Capital in excess of par	138,777			352,019			301,272				(653,291		)		138,777
Retained earnings	671,060			499,374			261,508				(760,882		)		671,060
Accumulated other comprehensive income	29,057			—			(13,401		)		13,401				29,057
Total stockholders’ equity	839,432			851,393			549,379				(1,400,772		)		839,432
Total liabilities and stockholders’ equity	$	1,865,721		$	1,011,706		$	1,010,630			$	(2,583,747	)		$	1,304,310

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statements of Income

Three Months Ended June 30, 2007

	Parent			Guarantor				Non-Guarantor
	Company			Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	349,302			$	177,716			$	(23,650	)		$	503,368
Costs and expenses:
Cost of sales	—				190,121				74,126				(23,650		)		240,597
Advertising, promotion and catalog	—				23,514				4,754				—				28,268
Selling, general and administrative	21,854				68,323				67,307				—				157,484
	21,854				281,958				146,187				(23,650		)		426,349
Income from operations	(21,854		)		67,344				31,529				—				77,019
Other income (expense):
Equity in income of subsidiaries	62,046				—				—				(62,046		)		—
Intercompany interest	7,402				—				(7,402		)		—				—
Interest	(3,630		)		(4		)		(185		)		—				(3,819		)
Miscellaneous, net	1,623				473				1,726				—				3,822
	67,441				469				(5,861		)		(62,046		)		3
Income before provision for income taxes	45,587				67,813				25,668				(62,046		)		77,022
(Benefit)/ provision for income taxes	(5,639		)		23,735				7,700				—				25,796
Net income	$	51,226			$	44,078			$	17,968			$	(62,046	)		$	51,226

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statements of Income

Three Months Ended June 30, 2006

	Parent			Guarantor				Non-Guarantor
	Company			Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	322,774			$	174,379			$	(21,856	)		$	475,297
Costs and expenses:
Cost of sales	—				204,347				74,103				(21,856		)		256,594
Advertising, promotion and catalog	—				22,836				5,276				—				28,112
Selling, general and administrative	20,564				61,240				62,151				—				143,955
	20,564				288,423				141,530				(21,856		)		428,661
Income from operations	(20,564		)		34,351				32,849				—				46,636
Other income (expense):
Equity in income of subsidiaries	40,741				—				—				(40,741		)		—
Intercompany interest	5,840				—				(5,840		)		—				—
Interest	(5,458		)		—				—				—				(5,458		)
Miscellaneous, net	591				(1,454		)		645				—				(218		)
	41,714				(1,454		)		(5,195		)		(40,741		)		(5,676		)
Income before provision for income taxes	21,150				32,897				27,654				(40,741		)		40,960
(Benefit)/ provision for income taxes	(8,751		)		11,514				8,296				—				11,059
Net income	$	29,901			$	21,383			$	19,358			$	(40,741	)		$	29,901

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statements of Income

Nine Months Ended June 30, 2007

	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries				Eliminations				Consolidated
Net sales	$	—		$	1,047,147			$	538,549			$	(67,631	)		$	1,518,065
Costs and expenses:
Cost of sales	—			571,147				223,658				(67,631		)		727,174
Advertising, promotion and catalog	—			75,294				14,178				—				89,472
Selling, general and administrative	61,472			205,461				194,454				—				461,387
	61,472			851,902				432,290				(67,631		)		1,278,033
Income from operations	(61,472		)	195,245				106,259				—				240,032
Other income (expense):
Equity in income of subsidiaries	189,295			—				—				(189,295		)		—
Intercompany interest	20,782			—				(20,782		)		—				—
Interest	(12,189		)	(24		)		(823		)		—				(13,036		)
Miscellaneous, net	2,841			1,912				2,715				—				7,468
	200,729			1,888				(18,890		)		(189,295		)		(5,568		)
Income before provision for income taxes	139,257			197,133				87,369				(189,295		)		234,464
(Benefit)/ provision for income taxes	(20,178		)	68,997				26,210				—				75,029
Net income	$	159,435		$	128,136			$	61,159			$	(189,295	)		$	159,435

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statements of Income

Nine Months Ended June 30, 2006

	Parent			Guarantor				Non-Guarantor
	Company			Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales	$	—			$	930,468			$	528,819			$	(46,977	)		$	1,412,310
Costs and expenses:
Cost of sales	—				575,555				225,096				(46,977		)		753,674
Advertising, promotion and catalog	—				64,845				15,493				—				80,338
Selling, general and administrative	64,822				199,713				182,297				—				446,832
Trademark impairment	—				10,450				—				—				10,450
	64,822				850,563				422,886				(46,977		)		1,291,294
Income from operations	(64,822		)		79,905				105,933				—				121,016
Other income (expense):
Equity in income of subsidiaries	114,993				—				—				(114,993		)		—
Intercompany interest	16,773				—				(16,773		)		—				—
Interest	(21,408		)		—				—				—				(21,408		)
Miscellaneous, net	1,101				(1,275		)		2,102				—				1,928
	111,459				(1,275		)		(14,671		)		(114,993		)		(19,480		)
Income before provision for income taxes	46,637				78,630				91,262				(114,993		)		101,536
(Benefit)/ provision for income taxes	(27,485		)		27,521				27,378				—				27,414
Net income	$	74,122			$	51,109			$	63,884			$	(114,993	)		$	74,122

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended June 30, 2007

	Parent			Guarantor				Non-Guarantor
	Company			Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income	$	159,435			$	128,136			$	61,159			$	(189,295	)		$	159,435
Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
Equity in earnings of subsidiaries	(189,295		)		—				—				189,295				—
Impairments and disposals of property, plant and equipment	417				1,133				166				—				1,716
Depreciation and amortization	5,187				26,505				10,345				—				42,037
Foreign currency transaction (gain) loss	(808		)		(1,242		)		38				—				(2,012		)
Amortization and write-off of deferred charges	1,698				—				—				—				1,698
(Recovery of) provision for doubtful accounts	—				(727		)		227				—				(500		)
Inventory reserves	—				5,866				—				—				5,866
Deferred income taxes	—				11,253				(166		)		—				11,087
Excess income tax benefit from exercise of stock options	(2,356		)		—				—				—				(2,356		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	—				(6,133		)		1,678				—				(4,455		)
Inventories	—				(17,346		)		(7,348		)		—				(24,694		)
Prepaid expenses and other current assets	—				16,448				277				—				16,725
Other assets	—				(433		)		—				—				(433		)
Accounts payable	—				15,007				(1,332		)		—				13,675
Accrued expenses and other liabilities	—				3,552				(14,926		)		—				(11,374		)
Net cash (used in) provided by operating activities	(25,722		)		182,019				50,118				—				206,415
Cash flows from investing activities:
Intercompany accounts	146,560				(158,953		)		12,393				—				—
Purchase of property, plant and equipment	(2,584		)		(39,343		)		—				—				(41,927		)
Proceeds from sale of property, plant and equipment	85				12				—				—				97
Purchase of available-for-sale investments	(374,869		)		—				—				—				(374,869		)
Proceeds from sale of available-for-sale investments	239,603				—				—				—				239,603
Cash paid for acquisitions, net of cash acquired	(37,005		)		—				—				—				(37,005		)
Restricted cash	—				—				(18,698		)		—				(18,698		)
Net cash used in investing activities	(28,210		)		(198,284		)		(6,305		)		—				(232,799		)
Cash flows from financing activities:
Principal payments under long-term debt agreements and capital leases	(520		)		(132		)		—				—				(652		)
Payments for financing fees	(1,649		)		—				—				—				(1,649		)
Excess income tax benefit from exercise of stock options	2,356				—				—				—				2,356
Proceeds from stock options exercised	892				—				—				—				892
Net cash provided by (used in) financing activities	1,079				(132		)		—				—				947
Effect of exchange rate changes on cash and cash equivalents	808				1,781				1,795				—				4,384
Net (decrease) increase in cash and cash equivalents	(52,045		)		(14,616		)		45,608				—				(21,053		)
Cash and cash equivalents at beginning of period	59,966				9,385				20,454				—				89,805
Cash and cash equivalents at end of period	$	7,921			$	(5,231	)		$	66,062			$	—			$	68,752

NBTY, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(Dollars and shares in thousands, except per share amounts)

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended June 30, 2006

	Parent			Guarantor				Non-Guarantor
	Company			Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income	$	74,122			$	51,109			$	63,884			$	(114,993	)		$	74,122
Adjustments to reconcile net income to cash and cash equivalents provided by operating activities:
Equity in earnings of subsidiaries	(114,993		)		—				—				114,993				—
Impairments and disposals of property, plant and equipment	—				2,509				1,174				—				3,683
Depreciation and amortization	5,511				23,766				12,707				—				41,984
Foreign currency transaction loss	3				1,615				395				—				2,013
Amortization and write-off of deferred charges	3,919				—				—				—				3,919
Gain on extinguishment of debt	(425		)		—				—				—				(425		)
Gain on settlement of interest rate swap	(353		)		—				—				—				(353		)
Impairment on trademark	—				10,450				—				—				10,450
Provision for allowance for doubtful accounts	—				478				471				—				949
Inventory reserves	—				(195		)		443				—				248
Tax benefit from exercise of stock options	(15		)		—				—				—				(15		)
Deferred income taxes	70				2,978				1,064				—				4,112
Changes in operating assets and liabilities:
Accounts receivable	—				(13,735		)		(938		)		5,911				(8,762		)
Inventories	—				109,767				9,662				—				119,429
Prepaid expenses and other current assets	—				21,134				(3,867		)		—				17,267
Other assets	—				344				—				—				344
Accounts payable	—				(2,030		)		4,649				—				2,619
Accrued expenses and other liabilities	29,844				(4,643		)		(22,415		)		(5,911		)		(3,125		)
Net cash (used in) provided by operating activities	(2,317		)		203,547				67,229				—				268,459
Cash flows from investing activities:
Intercompany accounts	227,152				(187,671		)		(39,481		)		—				—
Purchase of property, plant and equipment	(2,567		)		(19,323		)		(4,907		)		—				(26,797		)
Proceeds from sale of property, plant and equipment	—				—				102				—				102
Proceeds from sale of available-for-sale marketable securities	39,900				—				—				—				39,900
Purchase price settlements, net	—				—				1,845				—				1,845
Purchase of intangible assets	(150		)		—				(283		)		—				(433		)
Net cash provided by (used in) investing activities	264,335				(206,994		)		(42,724		)		—				14,617
Cash flows from financing activities:
Principal payments under long-term debt agreements	(276,494		)		—				—				—				(276,494		)
Principal payments under the Revolving Credit Facility	(11,000		)		—				—				—				(11,000		)
Proceeds from borrowings under the Revolving Credit Facility	5,000				—				—				—				5,000
Proceeds from settlement of interest rate swap	353				—				—				—				353
Tax benefit from exercise of stock options	15				—				—				—				15
Proceeds from stock options exercised	65				—				—				—				65
Net cash used in financing activities	(282,061		)		—				—				—				(282,061		)
Effect of exchange rate changes on cash and cash equivalents	239				—				1,163				—				1,402
Net (decrease) increase in cash and cash equivalents	(19,804		)		(3,447		)		25,668				—				2,417
Cash and cash equivalents at beginning of period	28,028				(2,085		)		41,339				—				67,282
Cash and cash equivalents at end of period	$	8,224			$	(5,532	)		$	67,007			$	—			$	69,699

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations

(Dollars and shares in thousands, except per share amounts)

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words ‘‘subject to,’’ ‘‘believe,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘project,’’ ‘‘estimate,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘should,’’ ‘‘can,’’ or ‘‘anticipate,’’ or the negative thereof, or variations thereon, or similar expressions are intended to identify forward-looking statements, which are inherently uncertain. Similarly, discussions of strategy although believed to be reasonable, are also forward-looking statements and are inherently uncertain.

All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors which may materially affect such forward-looking statements include:

· slow or negative growth in the nutritional supplement industry;

· interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service;

· adverse publicity regarding nutritional supplements;

· our inability to retain customers of companies (or mailing lists) recently acquired;

· increased competition;

· increased costs;

· loss or retirement of key members of our management;

· increases in the cost of borrowings or unavailability of additional debt or equity capital, or both;

· unavailability of, or inability to consummate, advantageous acquisitions in the future, or our inability to integrate the acquisitions into the mainstream of our business;

· changes in general worldwide economic and political conditions in the markets in which we may compete from time to time;

· our inability to gain or hold market share of our wholesale or retail customers anywhere in the world;

· unavailability of electricity in certain geographical areas;

· our inability to obtain or renew insurance or the costs of same;

· exposure to and expense of defending and resolving product liability claims, intellectual property claims and other litigation;

· our inability to implement our business strategy successfully;

· our inability to manage our retail, wholesale, manufacturing and other operations efficiently;

· consumer acceptance of our products;

· our inability to renew leases for our retail locations;

· inability of our retail stores to attain or maintain profitability;

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

· the absence of clinical trials for many of our products;

· sales and earnings volatility or trends for us and our market segments;

· the efficacy of our internet and on-line sales and marketing strategies;

· fluctuations in foreign currencies, including the British pound, the euro and the Canadian dollar;

· import-export controls on sales to foreign countries;

· our inability to secure favorable new sites for, and delays in opening, new retail locations;

· 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, good manufacturing practices and section 404 requirements of the Sarbanes-Oxley Act of 2002 in the United States, and the food supplements directive and traditional herbal medicinal products directive in Europe;

· the mix of our products and the profit margins thereon;

· the availability and pricing of raw materials;

· risk factors discussed elsewhere in this report and in our Form 10-K for the fiscal year ended September 30, 2006;

· adverse effects on us of increased gasoline prices and potentially reduced traffic flow to our retail locations;

· adverse tax determinations;

· the loss of a significant customer; and

· other factors beyond our control.

Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. Readers are cautioned not to place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline 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.

Industry data used throughout this report was obtained from industry publications and internal company estimates. While we believe such information to be reliable, its accuracy has not been independently verified and cannot be guaranteed.

The following discussion should also be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere herein and our 2006 Form 10-K.

Overview

We are a leading vertically integrated manufacturer, marketer, distributor and retailer of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. We market approximately 22,000 products under several brands, including Nature’s Bounty®, Vitamin

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

World®, Puritan’s Pride®, Holland & Barrett®, Rexall®, Sundown®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, DeTuinen®, Le Naturiste™, SISU®, Solgar® and Ester-C®.

We market our products through four distribution channels:

Recent Acquisitions

On October 2, 2006 we acquired 100% of the stock of Zila Nutraceuticals, Inc., a subsidiary of Zila, Inc., for $37,500 in cash and up to a $3,000 contingent cash payment which is based upon the EBITDA performance of this acquisition during the one-year period following the closing. Once acquired, we changed the name of Zila Nutraceuticals, Inc. to The Ester-C Company (“Ester-C”). Ester-C manufactures and markets Ester-C®, which is known throughout multiple markets including health food stores and mass market retailers. This acquisition represents an opportunity for us to enhance our presence in key markets. We continue to evaluate acquisition opportunities across the industry and around the world.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. A discussion of our critical accounting policies and estimates are included in Management’s Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. Management has discussed the development and selection of these policies with the Audit Committee of the Company’s Board of Directors, and the Audit Committee of the Board of Directors has reviewed the Company’s disclosures of these policies. There have been no material changes to the critical accounting policies or estimates reported in the Management’s Discussion and Analysis section of the audited financial statements for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Results of Operations

Operating results in all periods presented include the results of acquisitions. The timing of acquisitions and the changing mix of our businesses may affect the comparability of results from one period to another.

Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006:

	Net Sales by Segment Three months ended June 30,
	2007					2006					Comparison 2007 vs. 2006
Segment	Net Sales		% of total			Net Sales		% of total			% change				% change
Wholesale / US Nutrition	$	248,177		49.3	%	$	227,361		47.8	%		$	20,816			9.2	%
North American Retail	55,666			11.1	%	57,987			12.2	%		(2,321		)		-4.0	%
European Retail	152,688			30.3	%	140,453			29.6	%		12,235				8.7	%
Direct Response / E-Commerce	46,837			9.3	%	49,496			10.4	%		(2,659		)		-5.4	%
Net sales	$	503,368		100.0	%	$	475,297		100.0	%		$	28,071			5.9	%

	Gross Profit by Segment Three months ended June 30,
	2007						2006						Comparison 2007 vs. 2006
Segment	Gross Profit			% of sales			Gross Profit			% of sales			$ change				% change
Wholesale / US Nutrition		$	105,038		42.3	%		$	69,529		30.6	%		$	35,509			51.1	%
North American Retail		32,816			59.0	%		34,318			59.2	%		(1,502		)		-4.4	%
European Retail		97,306			63.7	%		86,438			61.5	%		10,868				12.6	%
Direct Response / E-Commerce		27,611			59.0	%		28,418			57.4	%		(807		)		-2.8	%
Gross Profit		$	262,771		52.2	%		$	218,703		46.0	%		$	44,068			20.1	%

Net Sales

Net sales by segment for the three months ended June 30, 2007 as compared with the prior comparable period were as follows:

Wholesale / US Nutrition

Net sales for the Wholesale / US Nutrition segment increased $20,816 or 9.2% to $248,177 for the three months ended June 30, 2007. This increase was primarily due to increased distribution to existing customers, new product introductions and promotions. Some of the major brands in this segment include Nature’s Bounty, Solgar, Osteo Bi-Flex and Rexall. We continue to adjust shelf space allocation between the US Nutrition brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to strengthen US Nutrition’s position in the mass market. US Nutrition continues to leverage valuable consumer sales information obtained from our Vitamin World retail stores and Puritan’s Pride direct-response/e-commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales.

Product returns were $5,350 or 2.2% of net sales for the three months ended June 30, 2007 as compared to $4,942 or 2.2% of net sales for the prior comparable period. The product returns for the three months ended June 30, 2007 and 2006 are mainly attributable to returns in the ordinary course of business.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

We expect sales returns relating to normal business operations to trend at approximately 2% of Wholesale net sales.

For the three months ended June 30, 2007, one customer of the Wholesale / US Nutrition division represented, individually, more than 10% of the Wholesale / US Nutrition segment’s net sales. For the three months ended June 30, 2006, two customers of the Wholesale / US Nutrition division represented, individually, more than 10% of the Wholesale / US Nutrition segment’s net sales. While no one customer represented individually more than 10% of the Company’s consolidated net sales, the loss of any one of our major customers would have a material adverse effect on the Wholesale / US Nutrition segment if the Company is unable to replace such customer(s).

North American Retail

Net sales for this segment decreased $2,321 or 4.0% to $55,666 for the three months ended June 30, 2007. This decrease was primarily due to a reduction of 24 Vitamin World stores operating at the end of the three months ended June 30, 2007 as compared to the prior comparable period. Same store sales for stores open more than one year were unchanged. Additionally, the number of customers in the Savings Passport Program, a customer loyalty program, increased approximately 0.8 million to 6.9 million customers at June 30, 2007, as compared to 6.1 million customers at the end of the prior comparable period. The Savings Passport Card is used to increase customer traffic and provide incentives for customers to purchase at Vitamin World. It is also an additional tool we utilize to track customer preferences and purchasing trends. During the three months ended June 30, 2007, we closed two under-performing Vitamin World stores and we anticipate that approximately three under-performing stores will be closed during the remainder of the fiscal year.

The following is a summary of North American Retail store activity for the three months ended June 30, 2007 and 2006:

	Three months ended June 30,
North American Retail stores:	2007			2006
*Vitamin World*
Open at beginning of the period		462			507
Opened during the period		—			3
Closed during the period		(2	)		(26	)
Open at end of the period		460			484
*Le Naturiste*
Company-owned stores
Open at beginning of the period		88			97
Opened during the period		—			1
Closed during the period		(3	)		(2	)
Open at end of the period		85			96
Franchised stores
Open at beginning of the period		—			3
Opened during the period		—			—
Closed during the period		—			(1	)
Open at end of the period		—			2

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

European Retail

The increase in net sales for this segment is the result of favorable foreign currency translation. Due in part to the difficult retail environment in the U.K., local currency same store sales for stores open more than one year essentially remained unchanged from the prior like period. Same store sales in U.S. dollars increased 7.7% or $10,789 as compared to the prior comparable period. The European Retail division continues to leverage its premier status, high street locations and brand awareness to achieve these results.

The following is a summary of European Retail store activity for the three months ended June 30, 2007 and 2006:

	Three months ended June 30,
European Retail stores:	2007		2006
Company-owned stores
Open at beginning of the period		598		591
Opened during the period		3		3
Closed during the period		—		—
Open at end of the period		601		594
Franchised stores
Open at beginning of the period		22		21
Opened during the period		—		1
Closed during the period		—		—
Open at end of the period		22		22

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Direct Response / E-Commerce

Direct Response / E-Commerce net sales decreased $2,659 or 5.4% to $46,837 for the three months ended June 30, 2007. This decrease is primarily due to the decreased number and type of promotions that ran during the period as compared to the prior comparable period. For the quarter ended June 30, 2007, Puritan’s Pride received 3% less orders than in the prior comparable period. In addition, the average order size decreased approximately 12% as compared to the prior comparable period. On-line net sales comprised 38.4% of this segment’s net sales for the three months ended June 30, 2007. We remain the leader in the direct response and e-commerce sectors and continue to increase the number of products available via our catalog and websites. Puritan’s Pride continues to vary its promotional strategy throughout the fiscal year and as such, its historical results reflect this pattern and should be viewed on an annual, and not quarterly, basis.

Gross Profit

The Wholesale / US Nutrition segment’s gross profit as a percentage of net sales increased to 42.3% for the three months ended June 30, 2007 from the prior comparable period of 30.6% principally as a result of greater efficiencies generated in manufacturing and supply chain management brought about by economies of scale and changes in product mix. In addition, gross profit percentage increases were realized across substantially all wholesale categories.

The increase in the European Retail segment’s gross profit is the result of favorable foreign currency translation. In local currency the segment’s gross profit was relatively unchanged from the prior comparable period.

The decrease in gross profit dollars in both the North American Retail and Direct Response segments primarily reflect lower sales volumes in these segments. In addition, the timing of discounting of products and changes in the promotional programs in effect this period as compared to the prior comparable period affected the gross margins.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses by segment for the three months ended June 30, 2007 as compared with the prior comparable period were as follows:

	Three months ended						Dollar				Percentage
	June 30,						Change				Change
	2007			2006			2007 vs. 2006				2007 vs. 2006
Wholesale / US Nutrition	$	18,515		$	16,979			$	1,536			9	%
North American Retail	2,457			2,396				61				3	%
European Retail	3,284			3,656				(372		)		-10	%
Direct Response / E-Commerce	3,858			4,996				(1,138		)		-23	%
Corporate	154			85				69				81	%
Total	$	28,268		$	28,112			$	156			1	%
Percentage of net sales	5.6		%	5.9		%

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The increase in the Wholesale / US Nutrition segment’s advertising, promotions and catalogs is mainly due to the timing of advertising campaigns for some of our leading brands. In addition, Wholesale / US Nutrition segment’s increased advertising costs relates to the Ester-C brand, which was acquired during fiscal 2007. We create our own advertising materials through our in-house staff of advertising associates. In the U.K. and Ireland, both Holland & Barrett and Nature’s Way advertise on television and in national newspapers. GNC (UK) and De Tuinen also advertise in newspapers. SISU advertises in trade journals and magazines. The decrease in Direct Response’s advertising primarily relates to a shift in timing of advertising campaigns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses by segment for the three months ended June 30, 2007 as compared with the prior comparable period were as follows:

	Three months ended June 30,						Dollar Change			Percentage Change
	2007			2006			2007 vs. 2006			2007 vs. 2006
Wholesale / US Nutrition	$	31,942		$	29,374			$	2,568		9	%
North American Retail	30,405			29,808				597			2	%
European Retail	57,459			50,014				7,445			15	%
Direct Response / E-Commerce	11,966			11,311				655			6	%
Corporate	25,712			23,448				2,264			10	%
Total	$	157,484		$	143,955			$	13,529		9	%
Percentage of net sales	31.3		%	30.3		%

The Wholesale / US Nutrition’s selling, general and administrative expense increased primarily due to additional severance and bonus payments in the current quarter. The North American Retail’s selling, general and administrative expense included an increase of $415 in the asset impairment charges relating to certain under-performing Vitamin World stores as compared to the prior like period. The European Retail’s selling, general and administrative expense increased primarily due to foreign exchange translation.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Interest Expense

Interest expense by debt category for the three months ended June 30, 2007 as compared with the prior comparable period was as follows:

	Three months ended June 30,							Dollar Change
Debt Category:	2007				2006			2007 vs. 2006
71¤8% Senior subordinated notes due 2015 (“71¤8% Notes”)		$	3,384			$	3,384		$	—
Term loan C; fully repaid in April 2006		—				28			(28		)
Term loan A; fully repaid in September 2006		—				907			(907		)
Deferred financing fees		82				530			(448		)
Capitalized interest		(186		)		171			(357		)
Other		539				438			101
Total interest expense		$	3,819			$	5,458		$	(1,639	)

Interest expense decreased primarily due to the elimination of interest and deferred financing fees on Term Loan A which was fully repaid in fiscal 2006.

Miscellaneous, net

The components of miscellaneous, net were as follows:

	Three months ended						Dollar
	June 30,						Change
	2007			2006			2007 vs. 2006
Foreign exchange gains / (losses)	$	1,632		$	(1,866	)		$	3,498
Rental income	219			205				14
Investment income	2,077			1,360				717
Other	(106		)	83				(189		)
Total	$	3,822		$	(218	)		$	4,040

Miscellaneous, net increased primarily due to the foreign exchange gains for the three months ended June 30, 2007 as compared to foreign exchange losses in the prior comparable period, as well as investment income on cash equivalents and short term investments.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Provision for Income Taxes

Our income tax expense is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct our business, and our ability to utilize state tax credits that expire primarily between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for the three months ended June 30, 2007 was 33.5%, compared to 27.0% in the prior comparable period. The fiscal year 2007 tax rate is lower than the statutory rate due to our decision to reinvest a portion of our foreign earnings in a lower tax jurisdiction, as well as our ability to partially utilize our prior year state and local investment tax credits. The fiscal year 2006 tax rate is lower than the statutory rate primarily due to the Foreign Earnings Repatriation (“FER”) provision in the American Jobs Creation Act of 2004. During the three months ended June 30, 2006, we estimated and recorded an incremental benefit of $1,060 relative to the FER provision.

Nine months ended June 30, 2007 Compared to the Nine months ended June 30, 2006

	Net Sales by Segment
	Nine months ended June 30,
	2007					2006					Comparison 2007 vs. 2006
Segment	Net Sales		% of total			Net Sales		% of total			$ change				% change
Wholesale / US Nutrition	$	739,874		48.7	%	$	667,662		47.3	%		$	72,212			10.8	%
North American Retail	166,403			11.0	%	178,110			12.6	%		(11,707		)		–6.6	%
European Retail	465,208			30.6	%	423,045			29.9	%		42,163				10.0	%
Direct Response / E-Commerce	146,580			9.7	%	143,493			10.2	%		3,087				2.2	%
Net sales	$	1,518,065		100.0	%	$	1,412,310		100.0	%		$	105,755			7.5	%

	Gross Profit by Segment
	Nine months ended June 30,
	2007						2006						Comparison 2007 vs. 2006
Segment	Gross Profit			% of sales			Gross Profit			% of sales			$ change				% change
Wholesale / US Nutrition		$	307,145		41.5	%		$	205,648		30.8	%		$	101,497			49.4	%
North American Retail		98,918			59.4	%		103,952			58.4	%		(5,034		)		–4.8	%
European Retail		295,938			63.6	%		262,870			62.1	%		33,068				12.6	%
Direct Response / E-Commerce		88,890			60.6	%		86,166			60.0	%		2,724				3.2	%
Gross Profit		$	790,891		52.1	%		$	658,636		46.6	%		$	132,255			20.1	%

Net Sales

Net sales by segment for the nine months ended June 30, 2007 as compared with the prior comparable period were as follows:

Wholesale / US Nutrition

Net sales for the Wholesale / US Nutrition segment increased $72,212 or 10.8% to $739,874 for the nine months ended June 30, 2007. This increase was primarily due to increased distribution to existing customers, new product introductions and promotions. Some of the major brands in this segment include Nature’s Bounty, Solgar, Osteo Bi-Flex and Rexall. We continue to adjust shelf space allocation between

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

the US Nutrition brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to strengthen US Nutrition’s position in the mass market. US Nutrition continues to leverage valuable consumer sales information obtained from our Vitamin World retail stores and Puritan’s Pride direct-response/e-commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales.

Product returns were $16,756 or 2.3% of net sales for the nine months ended June 30, 2007 as compared to $19,649 or 2.9% of net sales for the prior comparable period. The product returns for the nine months ended June 30, 2007 were mainly attributable to returns in the ordinary course of business. The product returns for the nine months ended June 30, 2006 were comprised of low carb related products as well as returns in the ordinary course of business. We expect sales returns relating to normal business operations to trend at approximately 2% of Wholesale net sales.

For the nine months ended June 30, 2007, one customer of the Wholesale / US Nutrition division represented, individually, more than 10% of the Wholesale / US Nutrition segment’s net sales. For the nine months ended June 30, 2006, two customers of the Wholesale / US Nutrition division represented, individually, more than 10% of the Wholesale / US Nutrition segment’s net sales. While no one customer represented individually more than 10% of the Company’s consolidated net sales, the loss of any one of our major customers would have a material adverse effect on the Wholesale / US Nutrition segment if the Company is unable to replace such customer(s).

North American Retail

Net sales for this segment decreased $11,707 or 6.6% to $166,403 for the nine months ended June 30, 2007. This decrease was primarily due to a reduction of 24 Vitamin World stores operating at the end of the nine months ended June 30, 2007 as compared to the prior comparable period. Same store sales for stores open more than one year decreased less than one percent. Additionally, the number of customers in the Savings Passport Program, a customer loyalty program, increased approximately 0.8 million to 6.9 million customers at June 30, 2007, as compared to 6.1 million customers at the end of the prior comparable period. The Savings Passport Card is used to increase customer traffic and provide incentives for customers to purchase at Vitamin World. It is also an additional tool we utilize to track customer preferences and purchasing trends. During the nine months ended June 30, 2007, we closed 17 under-performing Vitamin World stores and we anticipate that approximately three under-performing stores will be closed during the remainder of the fiscal year.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The following is a summary of North American Retail store activity for the nine months ended June 30, 2007 and 2006:

	Nine months ended June 30,
North American Retail stores:	2007			2006
*Vitamin World*
Open at beginning of the period		476			542
Opened during the period		1			8
Closed during the period		(17	)		(66	)
Open at end of the period		460			484
*Le Naturiste*
Company-owned stores
Open at beginning of the period		95			97
Opened during the period		—			2
Closed during the period		(10	)		(3	)
Open at end of the period		85			96
Franchised stores
Open at beginning of the period		1			4
Opened during the period		—			—
Closed during the period		(1	)		(2	)
Open at end of the period		—			2

European Retail

The increase in net sales for this segment is the result of favorable foreign currency translation. Due, in part, to the difficult retail environment, local currency same store sales for stores open more than one year essentially remained unchanged from the prior like period. Same store sales in U.S. dollars increased 8.7% or $36,452 as compared to the prior comparable period. The European Retail division continues to leverage its premier status, high street locations and brand awareness to achieve these results.

The following is a summary of European Retail store activity for the nine months ended June 30, 2007 and 2006:

	Nine months ended June 30,
European Retail stores:	2007			2006
Company-owned stores
Open at beginning of the period		596			591
Opened during the period		7			7
Closed during the period		(2	)		(4	)
Open at end of the period		601			594
Franchised stores
Open at beginning of the period		21			21
Opened during the period		1			1
Closed during the period		—			—
Open at end of the period		22			22

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Direct Response / E-Commerce

Direct Response / E-Commerce net sales, which includes both mail order and on-line net sales, increased $3,087 or 2.2% for the nine months ended June 30, 2007. This increase is primarily due to the increased number and type of promotions during the period as compared to the prior comparable period. As a result, Puritan’s Pride received 4.2% more orders than in the prior comparable period. This was offset by a decrease in the average order size of approximately 3.1% as compared to the prior comparable period. On-line net sales comprised 36.9% of this segment’s net sales for the nine months ended June 30, 2007. We remain the leader in the direct response and e-commerce sectors and continue to increase the number of products available via our catalog and websites. Puritan’s Pride continues to vary its promotional strategy throughout the fiscal year and as such, its historical results reflect this pattern and should be viewed on an annual, and not quarterly, basis.

Gross Profit

Gross profit as a percentage of net sales by segment for the nine months ended June 30, 2007 as compared to the prior comparable period was as follows:

The Wholesale / US Nutrition segment’s gross profit as a percentage of net sales increased to 41.5% for the nine months ended June 30, 2007 from the prior comparable period of 30.8% principally as a result of greater efficiencies generated in manufacturing and supply chain management brought about by economies of scale and changes in product mix. In addition, gross profit percentage increases were realized across substantially all wholesale categories.

The increase in the European Retail segment’s gross profit is primarily the result of favorable foreign currency translation. In local currency the segment’s gross profit decreased slightly from the prior comparable period.

The decrease in gross profit dollars in both the North American Retail segment primarily reflects lower sales volume which was partially offset by a small gross margin improvement. The increase in gross profit dollars in the Direct Response segment relates to the timing of discounting of products and changes in the promotional programs in effect this period as compared to the prior comparable period.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses by segment for the nine months ended June 30, 2007 as compared with the prior comparable period were as follows:

	Nine months ended						Dollar				Percentage
	June 30,						Change				Change
	2007			2006			2007 vs. 2006				2007 vs. 2006
Wholesale / US Nutrition	$	59,018		$	49,791			$	9,227			19	%
North American Retail	6,105			6,321				(216		)		-3	%
European Retail	9,745			10,149				(404		)		-4	%
Direct Response / E-Commerce	14,049			13,850				199				1	%
Corporate	555			227				328				144	%
Total	$	89,472		$	80,338			$	9,134			11	%
Percentage of net sales	5.9		%	5.7		%

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The increase in the Wholesale / US Nutrition’s advertising, promotions and catalogs expense is mainly attributable to the timing of advertising campaigns for some of our leading brands. In addition, increased costs relates to the Ester-C brand which was acquired during fiscal 2007. We create our own advertising materials through our in-house staff of advertising associates. In the U.K. and Ireland, both Holland & Barrett and Nature’s Way advertise on television and in national newspapers. GNC (UK) and De Tuinen also advertise in newspapers. SISU advertises in trade journals and magazines.

Selling, General and Administrative Expenses

Selling, general and administrative expenses by segment for the nine months ended June 30, 2007 as compared with the prior comparable period were as follows:

	Nine months ended June 30,						Dollar Change				Percentage Change
	2007			2006			2007 vs. 2006				2007 vs. 2006
Wholesale / US Nutrition	$	95,209		$	97,246			$	(2,037	)		-2	%
North American Retail	90,787			97,498				(6,711		)		-7	%
European Retail	167,101			143,548				23,553				16	%
Direct Response / E-Commerce	34,963			33,769				1,194				4	%
Corporate	73,327			74,771				(1,444		)		-2	%
Total	$	461,387		$	446,832			$	14,555			3	%
Percentage of net sales	30.4		%	31.6		%

The decrease in the Wholesale / US Nutrition’s selling, general and administrative expense is primarily due to higher severance costs for the nine months ended June 30, 2006 and a decreased headcount for the nine months ended June 30, 2007 as compared to the prior comparable period. The decrease in the North American Retail’s selling, general and administrative expense is primarily due to a decrease in salaries, rents and related lease expenses and depreciation of $3,788 as a result of fewer stores in operation during the nine months ended June 30, 2007 as compared to the prior like period. In addition, asset impairment charges relating to certain under-performing Vitamin World stores decreased $1,271 during the period as compared to the prior comparable period. The European Retail’s selling, general and administrative expense increased primarily due to foreign exchange translation of $10,831 and increased building and real estate tax expenses which is the result of an increase of eight stores in operation as compared to the prior like period.

Trademark Impairment

In March 2006, due to continued difficult market conditions, we decided to discontinue our Carb Solutions low-carb product line, which was acquired as part of the acquisition of Rexall Sundown in 2003. Accordingly, we wrote off the carrying value of the Carb Solutions trademarked brand of $10,450 during the nine months ended June 30, 2006.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Interest Expense

Interest expense by debt category for the nine months ended June 30, 2007 as compared with the prior comparable period was as follows:

	Nine months ended June 30,						Dollar Change
	2007			2006			2007 vs. 2006
Debt Category:
85¤8% Senior subordinated notes (“85¤8% Notes”)	$	—		$	901			$	(901	)
71¤8% Senior subordinated notes due 2015 (“71¤8% Notes”)	10,153			10,826				(673		)
Term loan C; fully repaid in April 2006	—			2,972				(2,972		)
Term loan A; fully repaid in September 2006	—			3,176				(3,176		)
Deferred financing fees	1,403			2,574				(1,171		)
Capitalized interest	(402		)	(810		)		408
Other	1,882			1,769				113
Total interest expense	$	13,036		$	21,408			$	(8,372	)

Interest expense decreased primarily due to the elimination of interest and deferred financing fees on Term Loans A and C which were fully repaid in fiscal 2006. Included in the interest expense for the nine months ended June 30, 2007 is the write off of deferred finance fees of $1,125 associated with the termination of our prior credit agreement. Included in the interest expense for the nine months ended June 30, 2006 are deferred finance fees of $1,748 associated with Term Loan C primarily due to advanced principal payments during the nine months ended June 30, 2006. Also, included in the interest expense for the nine months ended June 30, 2006 is the write off of deferred finance fees and bond amortization associated with our redemption of our 85¤8% Notes.

Miscellaneous, net

The components of miscellaneous, net were as follows:

	Nine months ended					Dollar
	June 30,					Change
	2007		2006			2007 vs. 2006
Foreign exchange gains / (losses)	$	2,012	$	(1,885	)		$	3,897
Rental income	589		540				49
Investment income	3,995		2,430				1,565
Other	872		843				29
Total	$	7,468	$	1,928			$	5,540

Miscellaneous, net increased primarily due to the foreign exchange gains for the nine months ended June 30, 2007 as compared to foreign exchange losses in the prior comparable period, as well as investment income on cash equivalents and short term investments.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Provision for Income Taxes

Our income tax expense is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct our business, and our ability to utilize state tax credits that expire primarily between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for the nine months ended June 30, 2007 was 32.0%, compared to 27.0% in the prior comparable period. The fiscal year 2007 tax rate is lower than the statutory rate due to our decision to reinvest a portion of our foreign earnings in a lower tax jurisdiction, as well as our ability to partially utilize our prior year state and local investment tax credits. The fiscal year 2006 tax rate is lower than the statutory rate primarily due to the Foreign Earnings Repatriation (“FER”) provision in the American Jobs Creation Act of 2004. During the nine months ended June 30, 2006, we estimated and recorded an incremental benefit of $5,802 relative to the FER provision.

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 that influence this variability of quarterly results include general economic and industry conditions affecting consumer spending, changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, promotional program incentives offered to customers, the timing of catalog promotions, the level of consumer acceptance of new products and 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.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operations and a $325,000 revolving credit facility, which has not yet been drawn upon. The facility provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under our prior credit agreement (which consisted solely of commitment fees since we had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the revolving credit facility, our prior credit agreement was terminated. We have used cash 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.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The following table sets forth, for the periods indicated, cash balances, short-term investments and working capital:

	As of		As of
	June 30,		September 30,
	2007		2006
Cash and cash equivalents at end of the period	$	68,752		$	89,805
Cash and cash equivalents held by foreign subsidiaries	$	66,062		$	20,454
Investments (short-term)	$	135,266		$	—
Working capital	$	551,515		$	391,713

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

	For the nine months
	ended June 30,
	2007			2006
Cash flow provided by operating activities	$	206,415		$	268,459
Cash flow (used in) provided by investing activities	$	(232,799	)	$	14,617
Cash flow provided by (used in) financing activities	$	947		$	(282,061	)
Inventory turnover	2.61			2.37
Days sales outstanding in accounts receivable	38			39

We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements. Cash and cash equivalents held by our foreign subsidiaries are subject to U.S. income taxes upon repatriation to the U.S. We generally repatriate all earnings from our foreign subsidiaries where permitted under local law. However, during fiscal 2007 we expect to reinvest a portion of our foreign earnings in a lower tax jurisdiction.

The increase in working capital of $159,802 as compared to September 30, 2006 was primarily due to cash flows from operations for the nine months ended June 30, 2007. The annualized inventory turnover rate was approximately 2.61 times during the current period ended June 30, 2007. This increased turnover rate, as compared to 2.37 during the prior like period, is primarily due to increased sales as compared to the prior comparable period. The increase in inventory reflects our ongoing efforts to maintain a sufficient supply of product to respond to our increased sales levels, as well as the effect of our acquisition of Ester-C and the impact of foreign currency translation. Accounts receivable increased due to increased wholesale sales. The annualized number of average days sales outstanding (on wholesale net sales) at June 30, 2007 was 38 days.

Cash provided by operating activities during the nine month period ended June 30, 2007 was mainly attributable to net income (excluding non-cash charges) and changes in operating assets and liabilities.

During the nine month period ended June 30, 2007, cash flows used in investing activities consisted primarily of net purchases of auction rate securities, purchases of property, plant and equipment, cash paid in connection with the acquisition of Ester-C and cash held as collateral.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

For the nine month period ended June 30, 2007 cash flows provided by financing activities related to proceeds and tax benefit from the exercise of stock options offset by payments for financing fees in connection with our revolving credit facility, principal payments under long-term debt agreements and principal payments under capital lease obligations.

We believe our cash generated from operations, as well as our borrowings available under our $325,000 revolving credit facility, 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 18 to 24 months. 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.

Debt Agreements

At June 30, 2007, we maintained a revolving credit facility (“the facility”) of up to $325,000 to be used for (a) the repayment of all obligations outstanding under our prior credit agreement (which consisted solely of commitment fees since we had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the facility, our prior credit agreement was terminated. At June 30, 2007, there were no borrowings outstanding under the facility.

Virtually all of our assets are collateralized under the facility. Under the facility, we are obligated to maintain various financial ratios and covenants must be met, including, but not limited to, a minimum consolidated interest coverage ratio and a maximum leverage ratio. The specific covenants and related definitions can be found in the facility, which has been previously filed with the Securities and Exchange Commission. Adjusted EBITDA, which is a factor utilized in calculating covenant ratios, is defined as net income, excluding the aggregate amount of all non-cash losses reducing net income (excluding any non-cash losses that results in an accrual of a reserve for cash charges in any future period and the reversal thereof), plus interest, taxes, depreciation and amortization. We are required to pay a commitment fee on the unused portion of the facility, which varies between .20% and .375% per annum, depending on our ratio of consolidated indebtedness to consolidated Adjusted EBITDA.

Since Adjusted EBITDA is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles (“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 Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

In September 2005, we issued 10-year 71¤8% Senior Subordinated Notes due 2015 in the aggregate principal amount of $200,000 (the “71¤8% Notes”). During fiscal 2006, we purchased, on the open market, $10,000 face value of the 71¤8% Notes for $9,575. The 71¤8% Notes are uncollaterized and subordinated in right of payment for all existing and future indebtedness. The 71¤8% Notes are subject to redemption, at our

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

option, in whole or in part, at any time on or after October 1, 2010, and prior to maturity at certain fixed redemption prices plus accrued interest. In addition, on or prior to October 1, 2008, we may redeem in the aggregate up to 35% of the 71¤8% Notes with the net cash proceeds received by us from certain types of equity offerings, at a redemption value equal to 107.125% of the principal amount plus accrued interest, provided that at least 65% of the aggregate principal amount of notes remain outstanding immediately after any such redemption. The notes do not have any sinking fund requirements. Interest is paid semi-annually on every April 1st and October 1st at the rate of 71¤8% per annum. Interest payments relating to such debt is $13,538 per annum, after the extinguishment of $10,000 face value of these notes in March 2006.

Our revolving credit facility and the indenture governing the 71¤8% Notes (“Indenture”) impose certain restrictions 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 dividends or 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.

In addition, a default under certain covenants in the Indenture and the facility, respectively, could result in the acceleration of our payment obligations under the facility and the Indenture, as the case may be, and, under certain circumstances, in cross-defaults under other debt obligations. These defaults may have a negative effect on our liquidity.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements. For additional information relating to certain contractual cash obligations see below.

Contractual Cash Obligations and Other Commercial Commitments

A summary of contractual cash obligations and other commercial commitments at June 30, 2007 was as follows:

	Payments Due By Period
			Less Than		1-3		3-5		After 5
	Total		1 Year		Years		Years		Years
Long-term debt, excluding interest	$	210,930	$	946	$	20,861	$	585	$	188,538
Interest	113,717		14,811		27,812		27,097		43,997
Operating leases	504,515		94,097		148,360		100,694		161,364
Purchase commitments	93,539		93,539
Capital commitments	6,206		6,206
Employment and consulting agreements	2,943		2,943
Total contractual cash obligations	$	931,850	$	212,542	$	197,033	$	128,376	$	393,899

We conduct retail operations under operating leases, which expire at various dates through 2031. Some of the leases contain escalation clauses, as well as renewal options, and provide for contingent rent based upon sales plus certain tax and maintenance costs. Future minimum rental payments (excluding real

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

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.

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 $93,539 at June 30, 2007. Such purchase commitments 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, 2007 no one supplier individually represented greater than 10% of our raw material purchases. We do not believe that the loss of any single supplier would have a material adverse effect on our consolidated financial condition or results of operations.

We had approximately $6,206 in open capital commitments at June 30, 2007, primarily related to manufacturing equipment as well as to computer hardware and software.

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 control of the Company. The remaining commitment for compensation to these two officers as of June 30, 2007 was approximately $971. In addition, five members of Holland & Barrett’s senior executive staff have service contracts terminable by us upon twelve months notice. The annual aggregate commitment for such H&B executive staff as of June 30, 2007 was approximately $1,747.

We maintain a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, one of our directors and the father of Scott Rudolph, our Chief Executive Officer. The agreement requires Mr. Rudolph to provide consulting services to us through December 31, 2007, in exchange for a consulting fee of $450 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to our other executives.

We have a mandatory retirement age policy that applies to each member of the Board of Directors, other than Mr. Arthur Rudolph, our founder. Under this superannuation policy, no person who has reached the age of 73 can stand for election to the Board. Each Board member who has served on the Board for at least 15 years and who retires from the Board solely as a result of this superannuation policy will continue to receive the annual Board retainer in effect at the time of such retirement until the earlier of the tenth anniversary of their retirement or their death. As a result of this policy, we are currently making payments to three former Directors totaling $190 per year.

We have grown our business 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.

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Inflation

Inflation affects the cost of raw materials, goods and services used by us. In recent years, inflation has been modest. However, high oil costs can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, it is management’s belief that the effects on revenues and operating results have not been significant. We seek to mitigate the adverse effects of inflation primarily through improved productivity and strategic buying initiatives. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs, insurance premiums, and other costs arising from or related to government imposed regulations.

Financial Covenants and Credit Rating

Our credit arrangements impose certain restrictions regarding capital expenditures and limit our ability to: 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 could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business or acquisition opportunities. We are in compliance with all covenants under our credit arrangements at June 30, 2007.

At June 30, 2007, credit ratings were as follows:

Credit Rating Agency	71¤8% Notes		Overall
Standard and Poors		B+		BB
Moody’s		Ba3		Ba2

At June 30, 2007, our revolving credit facility has not yet been rated.

Recent Accounting Developments

NBTY, Inc. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109.” (“FIN 48”). This Interpretation clarifies the accounting for uncertainty in tax positions and requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. We will adopt the provisions of FIN 48 on October 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 in our financial statements. We do not anticipate the adoption will have a significant impact on our consolidated financial position or results of operations.

Delaware		11-2228617
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets		1
	Condensed Consolidated Statements of Income		2
	Condensed Consolidated Statements of Cash Flows		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		50
Item 4.	Controls and Procedures		51
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		52
Item 1A.	Risk Factors		55
Item 6.	Exhibits		56
Signatures			58
Exhibits

Exhibits
3.1				Restated Certificate of Incorporation of NBTY, Inc.(1)
3.2				Amended and Restated By-Laws of NBTY, Inc.(2)
4.1				Indenture, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein), and The Bank of New York, as Trustee(3)
4.2				Registration Rights Agreement, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein) and J.P. Morgan Securities, Inc., Adams Harness, Inc., BNP Paribas Securities Corp., HSBC Securities (USA), Inc., and RBC Capital Markets Corporation(3)
10.1				Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Scott Rudolph(4)
10.2				Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Harvey Kamil(4)
10.3				Executive Consulting Agreement, effective January 1, 2002, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(4)
10.4				First Amendment to Executive Consulting Agreement, effective January 1, 2003, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(5)
10.5				Second Amendment to Executive Consulting Agreement, effective January 1, 2004, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(6)
10.6				Third Amendment to Executive Consulting Agreement, effective January 1, 2005, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(10)
10.7				Fourth Amendment to Executive Consulting Agreement, effective January 1, 2006, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(11)
10.8				Fifth Amendment to Executive Consulting Agreement, effective January 1, 2007, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(2)
10.9				NBTY, Inc. Retirement Savings and Employees’ Stock Ownership Plan.(1)
10.10				NBTY, Inc. Year 2000 Incentive Stock Option Plan.(7)
10.11				NBTY, Inc. Year 2002 Stock Option Plan.(8)
10.12				Revolving Credit Agreement, dated as of November 3, 2006, among NBTY, Inc., as Borrower, The Several Lenders from Time to Time Parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents.(9)
10.13				Guarantee and Collateral Agreement, by NBTY, Inc., the Guarantors party thereto in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of November 3, 2006(9)
10.14				Facility Agreement, dated September 20, 2006 for Good ‘N’ Natural Limited with JPMorgan Chase Bank, N.A., London Branch(2)
10.15				Stock Purchase Agreement by and between NBTY, Inc. and ZILA Inc., dated as of August 13, 2006 (the “Zila Purchase Agreement”)(2)
10.16				Amendment to Zila Purchase Agreement, dated as of September 28, 2006(2)
31.1				Rule 13a-14(a) Certification of Chief Executive Officer*
31.2				Rule 13a-14(a) Certification of Chief Financial Officer*

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

	NBTY, INC.
	(Registrant)
Date: August 6, 2007	By:	/s/ SCOTT RUDOLPH
		Scott Rudolph
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: August 6, 2007	By:	/s/ HARVEY KAMIL
		Harvey Kamil
		President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

	For the three months						For the nine months
	ended June 30,						ended June 30,
	2007			2006			2007			2006
Net sales	$	503,368		$	475,297		$	1,518,065		$	1,412,310
Costs and expenses:
Cost of sales	240,597			256,594			727,174			753,674
Advertising, promotion and catalog	28,268			28,112			89,472			80,338
Selling, general and administrative	157,484			143,955			461,387			446,832
Trademark impairment	—			—			—			10,450
	426,349			428,661			1,278,033			1,291,294
Income from operations	77,019			46,636			240,032			121,016
Other income (expense):
Interest	(3,819		)	(5,458		)	(13,036		)	(21,408		)
Miscellaneous, net	3,822			(218		)	7,468			1,928
	3			(5,676		)	(5,568		)	(19,480		)
Income before provision for income taxes	77,022			40,960			234,464			101,536
Provision for income taxes	25,796			11,059			75,029			27,414
Net income	$	51,226		$	29,901		$	159,435		$	74,122
Net income per share:
Basic	$	0.76		$	0.44		$	2.37		$	1.10
Diluted	$	0.74		$	0.43		$	2.29		$	1.07
Weighted average common shares outstanding:
Basic	67,353			67,204			67,279			67,197
Diluted	69,600			69,152			69,554			69,081