UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





x
            Annual
      Report Pursuant to Section 13 or 15(d) of
      the Securities Exchange Act of 1934 for the Fiscal year ended March 31,
      2008




OR




o
            Transition
      Report Pursuant to Section 13 or 15(d) of
      the Securities Exchange Act of 1934 for the transition period from ______
      to ______





Commission
File Number: 001-32433





PRESTIGE
      BRANDS HOLDINGS, INC.(Exact
      name of Registrant as specified in its charter)Delaware
              (State
      or other jurisdiction of incorporation or organization)
            
            
            
            20-1297589
              (I.R.S.
      Employer Identification No.)90
      North Broadway
              Irvington,
      New York 10533
              (Address
      of Principal Executive Offices, including zip code)(914)
      524-6810
              (Registrant’s
      telephone number, including area code)Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class:
            
            Name
      of each exchange on which registered:Common
      Stock, par value $.01 per share
            
            New
      York Stock ExchangeSecurities
      registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.           Yes
oNo þ





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.       Yes
oNo þ





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.  Yes þNo o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):




Large accelerated
      filer o
              Accelerated filer
      þ
              Non-accelerated
      filer o
              Smaller reporting
      company o


Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes oNo þ





The
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the Registrant’s most recently
completed second fiscal quarter ended September 28, 2007 was $371.5
million.





As of May
23, 2008, the Registrant had 49,959,454 shares of common stock
outstanding.





Documents
Incorporated by Reference


Portions
of the Registrant’s Definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders (the “2008 Proxy Statement”) presently scheduled for August 5, 2008
are incorporated by reference into Part III of this Annual Report on Form 10-K
to the extent described herein.















Table
of Contents





PagePart
      IItem
      1.
            Business
            1Item
      1A.
            Risk
      Factors
            16Item
      1B.
            Unresolved
      Staff Comments
            25Item
      2.
            Properties
            25Item
      3.
            Legal
      Proceedings
            26Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            28Part
      IIItem
      5.
            Market
      for Registrants’ Common Equity, Related Stockholder
              Matters
      and Issuer Purchases of Equity Securities
            29Item
      6.
            Selected
      Financial Data
            32Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition
              and
      Results of Operations
            34Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            52Item
      8.
            Financial
      Statements and Supplementary Data
            52Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting
              and
      Financial Disclosure
            52Item
      9A.
            Controls
      and Procedures
            52Item
      9B.
            Other
      Information
            53Part
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            54Item
      11.
            Executive
      Compensation
            54Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management
              and
      Related Stockholder Matters
            54Item
      13.
            Certain Relationships and Related
      Transactions, and Director Independence
            54Item
      14.
            Principal
      Accounting Fees and Services
            54Part
      IVItem
      15.
            Exhibits
      and Financial Statement Schedules
            55Trademarks
      and Trade NamesTrademarks
      and trade names used in this Annual Report on Form 10-K are the property
      of Prestige Brands Holdings, Inc. or its subsidiaries, as the case may
      be.  We have utilized the ® and TM symbols the first time
      each trademark or trade name appears in this Annual Report on Form
      10-K.







Part
I.


ITEM 1.
              BUSINESS


Overview





Unless
otherwise indicated by the context, all references in this Annual Report on Form
10-K to “we”, “us”, “our”, “Company” or “Prestige” refer to Prestige Brands
Holdings, Inc. and its subsidiaries.  Similarly, reference to a year
(e.g. “2008”) refers to our fiscal year ended March 31 of that
year.





We sell
well-recognized, brand name over-the-counter healthcare, household cleaning and
personal care products in a global marketplace.  We operate in niche
segments of these categories where we can use the strength of our brands, our
established retail distribution network, a low-cost operating model and our
experienced management team as a competitive advantage to grow our presence in
these categories and, as a result, grow our sales and profits.  Our
ultimate success is dependent on our ability to:





·
            Develop
      effective sales, advertising and marketing
  programs,


·
            Grow
      our existing product lines,


·
            Develop
      innovative new products,


·
            Acquire
      new brands,


·
            Respond
      to the technological advances and product introductions of our
      competitors, and


·
            Develop
      a larger presence in international
markets.





Our major
brands, set forth in the table below, have strong levels of consumer awareness
and retail distribution across all major channels.  These brands
accounted for approximately 94.3%, 94.1% and 93.3% of our net revenues for 2008,
2007 and 2006, respectively.


Major Brands
            
            Market
                Position
      (1)
            
            Market Segment
      (1)
            
            Market
              Share
      (1)
              (%)
            
            
            ACV(1)
              (%)Over-the-Counter
      Healthcare:Chloraseptic®
            
            
            #1
            
            Liquid
      Sore Throat Relief
            
            
            42.9
            
            
            
            96Clear
      Eyes®
            
            
            #2
            
            Redness
      Relief
            
            
            15.5
            
            
            
            88Compound
      W®
            
            
            #2
            
            Wart
      Removal
            
            
            33.4
            
            
            
            90Wartner®
            
            
            #3
            
            Wart
      Removal
            
            
            10.2
            
            
            
            60The
      Doctor’s® NightGuardTM
            
            
            #1
            
            Bruxism
      (Teeth Grinding)
            
            
            68.0
            
            
            
            56The
      Doctor’s® Brushpicks®
            
            
            #2
            
            Interdental
      Picks
            
            
            21.4
            
            
            
            47Little
      Remedies®(2)
            
            
            N/A
            
            Pediatric
      Healthcare
            
            
            N/A
            
            
            
            81Murine®
            
            
            #1
            
            Personal
      Ear Care
            
            
            21.3
            
            
            
            72New-Skin®
            
            
            #1
            
            Liquid
      Bandages
            
            
            46.6
            
            
            
            81Dermoplast®
            
            
            #3
            
            Pain
      Relief Sprays
            
            
            15.5
            
            
            
            63Household
      Cleaning:Comet®
            
            
            #2
            
            Abrasive
      Tub and Tile Cleaner
            
            
            31.1
            
            
            
            99Chore
      Boy®
            
            
            #1
            
            Soap
      Free Metal Scrubbers
            
            
            28.9
            
            
            
            37Spic
      and Span®
            
            
            #6
            
            All
      Purpose Cleaner
            
            
            3.9
            
            
            
            65Personal
      Care:Cutex®
            
            
            #1
            
            Nail
      Polish Remover
            
            
            26.7
            
            
            
            91Denorex®
            
            
            #6
            
            Medicated
      Shampoo
            
            
            1.7
            
            
            
            44





(1)
            The
      data included in this Annual Report on Form 10-K as regards the market
      share and ranking for our brands, has been prepared by the Company, based
      in part on data generated by the independent market research firm,
      Information Resources, Inc. (“Information
      Resources”).  Information Resources reports retail sales data in
      the food, drug and mass merchandise markets.  However,
      Information Resources’ data does not include Wal-Mart point of sale data,
      as Wal-Mart ceased providing sales data to the industry in
      2001.  Although Wal-Mart represents a significant portion of the
      mass merchandise market for us, as well as our competitors, we believe
      that Wal-Mart’s exclusion from the Information Resources data analyzed by
      the Company above does not significantly change our market share or
      ranking relative to our
competitors.




-1-


Our
products are sold through multiple channels, including mass merchandisers, drug,
grocery, dollar and club stores, which allows us to effectively launch new
products across all distribution channels and reduce our exposure to any single
distribution channel.  We focus our internal resources on our core
competencies:





·
            Effective
      Marketing and Advertising,


·
            Sales
      Excellence,


·
            Extraordinary
      Customer Service, and


·
            Innovation
      and Product Development.





While we
perform the production planning and oversee the quality control aspects of the
manufacturing, warehousing and distribution of our products, we outsource the
operating elements of these functions to entities that offer expertise in these
areas and cost efficiencies due to economies of scale.  Our operating
model allows us to focus on our marketing programs and product development and
innovation, which we believe enables us to achieve attractive margins while
minimizing capital expenditures and working capital requirements.





We have
developed our brand portfolio through the acquisition of strong and
well-recognized brands from larger consumer products and pharmaceutical
companies, as well as other brands from smaller private
companies.  While the brands we have purchased from larger consumer
products and pharmaceutical companies have long histories of support and brand
development, we believe that at the time we acquired them they were considered
“non-core” by their previous owners.  Consequently, they did not
benefit from the focus of senior level personnel or strong marketing
support.  We also believe that the brands we have purchased from
smaller private companies had been constrained by the limited financial
resources of their prior owners.  After adding a brand to our
portfolio, we seek to increase its sales, market share and distribution in both
new and existing channels through our established retail distribution
network.  We pursue this growth through increased advertising and
promotion, new sales and marketing strategies, improved packaging and
formulations and innovative new products.  Our business, business
model and the following competitive strengths and growth strategy, however, face
various risks that are described in “Risk Factors” in Item 1A of this Annual
Report on Form 10-K.








Competitive
Strengths





Diversified
Portfolio of Well-Recognized and Established Consumer Brands


We own
and market well-recognized consumer brands, many of which were established over
60 years ago.  Our diverse portfolio of products provides us with
multiple sources of growth and minimizes our reliance on any one product or
category.  We provide significant marketing support to our key brands
that is designed to enhance our sales growth and our long-term
profitability.  The markets in which we sell our products, however,
are highly competitive and include numerous national and global manufacturers,
distributors, marketers and retailers.  Many of these competitors have
greater research and development and financial resources than us and may be able
to spend more aggressively on advertising and marketing and research and
development, which may have an adverse effect on our competitive
position.








“Market
share” or “market position” is based on sales dollars in the United States, as
calculated by Information Resources for the 52 weeks ended March 23,
2008.  "Market segment" has been defined by the Company based on its
product offerings and the categories in which it competes.  “ACV” refers to
the All Commodity Volume Food Drug Mass Index, as calculated by Information
Resources for the 52 weeks ended March 23, 2008.  ACV measures the
weighted sales volume of stores that sell a particular product out of all the
stores that sell products in that market segment generally.  For
example, if a product is sold by 50% of the stores that sell products in that
market segment, but those stores account for 85% of the sales volume in that
market segment, that product would have an ACV of 85%.  We believe
that ACV is a measure of a product’s importance to major
retailers.  We believe that a high ACV evidences a product’s
attractiveness to consumers, as major national and regional retailers will carry
products that are attractive to their customers.  Lower ACV measures
would indicate that a product is not as available to consumers because the major
retailers do not carry products for which consumer demand may not be as
high.  For these reasons, we believe that ACV is an important measure
for investors to gauge consumer awareness of the Company’s product
offerings.





(2)
            Market
      share information for market segments in whichLittle Remedies
      products compete is not available from Information
    Resources.




-2-


Strong
Competitor in Attractive, Niche Categories


We
strategically choose to, and generally, compete in niche product categories that
address recurring consumer needs and that we believe are considered “non-core”
to larger consumer products and pharmaceutical companies.  We believe
we are well positioned in these categories due to the long history and consumer
awareness of our brands, our strong market positions and our low-cost operating
model.  However, a significant increase in the number of product
introductions by our competitors in these niche markets could have a material
adverse effect on our business, financial condition and results from
operations.





Proven
Ability to Develop and Introduce New Products


We focus
our marketing and product development efforts on the identification of
underserved consumer needs, the design of products that directly address those
needs and the ability to leverage our highly recognizable brand
names.  Demonstrative of this philosophy, in 2008 we introduced Comet SprayGel, a high
viscosity mildew stain remover spray and the MurineTMEarigate® Ear Cleaning
System, a natural and hypoallergenic wax removal system with a patented “reverse
spray action” that safely rinses away ear wax buildup without harming the user’s
sensitive eardrums.  We also restaged Clear Eyes for Dry Eyes ACR
Relief as Clear Eyes
for Itchy Eyes to address the needs of allergy sufferers.  These
product introductions followed a very successful 2007 when we introduced Clear Eyes Maximum Redness
Relief, a fast
acting formula that lubricates as it relieves redness, and Little Tummys®Gripe Water, an herbal
supplement with ginger and fennel for safe, gentle relief of infant colic,
hiccups and upset stomach.  Similarly, our 2006 product introductions
included: Clear EyesTriple Action Relief, formulated to remove redness, moisturize and
relieve irritation; DermoplastTMPoison Ivy
Treatment,a
non-irritating wash that controls the itch and removes oils that cause the
rash; as well as MurineHomeopathic Earache
Relief, formulated to promote the body’s natural ability to relieve ear
pain.  Although line extensions and new product introductions are
important to the overall growth of a brand, our efforts may reduce sales of
existing products within that brand.  In addition, certain of our
product introductions may not be successful.  While we did not
discontinue any of our recent product introductions during 2008, we did
discontinue MurineHomeopathic Allergy Eye Relief, MurineHomeopathic Tired
Eye Relief andChlorasepticDaily Defense Strips in 2007,all of which had been
introduced in 2006.  In a similar manner, we discontinued Little Teethers® Oral Pain
Relief Swabs in 2006, which we introduced in February 2005.





Efficient
Operating Model


To gain
operating efficiencies, we directly manage the production planning and quality
control aspects of the manufacturing, warehousing and distribution of our
products, while we outsource the operating elements of these functions to
well-established third-party providers.  This approach allows us to
benefit from their core competencies and maintain a highly variable cost
structure, with low overhead, limited working capital requirements and minimal
investment in capital expenditures as evidenced by the following:





Gross
              Profit
      %
            
            
            G&A
      %
              To
      Net Sales
            
            
            CapEx
      %
              To
      Net Sales2008
            
            
            51.6
            
            
            
            9.6
            
            
            
            0.12007
            
            
            51.9
            
            
            
            8.9
            
            
            
            0.22006
            
            
            53.0
            
            
            
            7.1
            
            
            
            0.2





In 2008,
our gross profit was adversely affected by the inventory costs associated with
the voluntary withdrawal from the marketplace of two medicated pediatric cough
and cold products marketed under the Little Remedies brand as part
of an industry-wide withdrawal of certain medicated pediatric cough and cold
products.  During 2007 our gross margin was adversely impacted by the
obsolescence reserves associated with certain of our Chloraseptic
inventory.  Our general and administrative expenses have been impacted
by the overall growth of the organization and professional fees incurred while
protecting our intellectual property and other rights.  Our operating
model, however, requires us to depend on third-party providers for manufacturing
and logistics services.  The inability or unwillingness of our
third-party providers to supply or ship our products could have a material
adverse effect on our business, financial condition and results from
operations.





Management
Team with Proven Ability to Acquire, Integrate and Grow Brands


Our
business has grown through acquisition, integration and expansion of the many
brands we have purchased.  Our management team has significant
experience in consumer product marketing, sales, product development and
customer service.  Unlike many larger consumer products companies
which we believe often entrust their smaller




-3-


brands to
successive junior employees; we dedicate experienced managers to specific
brands.  Since the Company has fewer than 100 employees, we seek more
experienced personnel to bear the substantial responsibility of brand management
and effectuate our growth strategy.  These managers nurture the brands
as they grow and evolve.








Growth
Strategy





In order
to continue to enhance our brands and drive growth we focus our growth strategy
on our core competencies:





·
            Effective
      Marketing and Advertising,


·
            Sales
      Excellence,


·
            Extraordinary
      Customer Service, and


·
            Innovation
      and Product Development.





We plan
to execute this strategy through:





·
            Investments
      in Advertising and Promotion


We will
continue to invest in advertising and promotion to drive the growth of our key
brands.  Our marketing strategy is focused primarily on
consumer-oriented programs that include media advertising, targeted coupon
programs and in-store advertising.  While the absolute level of
marketing expenditures differs by brand and category, we typically have
increased the amount of investment in our brands after acquiring
them.  For example, after the acquisition ofthe Dental Concepts
line of products in 2006, we expanded consumer promotion programs and increased
advertising, which resulted in domestic annual brand sales growth of
approximately 26% during 2007.  In 2007, we promoted the introduction
of our first dual-action product, Chloraseptic Sore Throat plus
Cough Lozenges, as well as 2 sugar free sore throat lozenges.  In
2008, a very active year, we vigorously advertised and promoted the introduction
of Comet SprayGel,
Murine Earigate and Chloraseptic Liquid Center
Lozenges all of which were extremely well received by
consumers.  Given the competition in our industry, there is a risk
that our marketing efforts may not result in increased sales and
profitability.  Additionally, no assurance can be given that we can
maintain these increased sales and profitability levels once
attained.





·
            Growing
      our Categories and Market Share with Innovative New
    Products


One of
our strategies is to broaden the categories in which we participate and our
share within those categories through ongoing product innovation.  As
an example, we followed our successful launch in 2005 of an artificial tears
product calledClear Eyesfor Dry Eyes with another innovative product in 2006 called Clear EyesTriple Action
Relief, formulated to remove redness, moisturize and relieve irritation, as well
as Clear Eyes Maximum
Redness Relief in 2007.  In 2008, we launched Murine Earigate and Comet SprayGel; innovative
new products to address specific needs and capitalize on the brand awareness of
both Murine and Comet.  These
successful product introductions were the primary drivers of the brands'
continued growth.  Future product introductions to be marketed under
the Chloraseptic and
Little Remedies brand
names will include a Food and Drug Administration (“FDA”) cleared, patented
topical gel that helps block allergens on contact at the nose to help prevent
runny nose, sneezing and nasal congestion.  While there is always a
risk that sales of existing products may be reduced by new product
introductions, our goal is to grow the overall sales of our brands.





·
            Increasing
      Distribution Across Multiple
Channels


Our broad
distribution base ensures that our products are well positioned across all
available channels and that we are able to participate in changing consumer
retail trends.  In 2005, we expanded our sales in wholesale club
stores, introducing customized packaging and sizes of our products designed
specifically for this higher growth channel.  Comet grew approximately 18%
in this channel during 2006.  There is a risk however, that we may not
be able to maintain or enhance our relationships across distribution channels,
which could adversely impact our sales, business, financial condition and
results from operations.





-4-


·
            Growing
      Our International Business


We intend
to increase our focus on growing our international
business.  International sales outside of North America represented
4.0% of revenues in 2008, 4.6% of revenues in 2007 and 3.4% of our revenues in
2006.  We have designed and developed both product and packaging for
specific international markets and expect our international revenues to grow as
a percentage of total revenues.  In addition to Clear Eyes, Murine and Chloraseptic, which are
currently sold internationally, we license The Procter & Gamble Company to
market the Comet brand
in Eastern Europe.  Since a number of our other brands have previously
been sold internationally, we intend to expand the number of brands sold through
our existing international distribution network and are actively seeking
additional distribution partners for further expansion into other international
markets.  There is a risk, however, that increasing our focus on
international growth may divert attention and resources from implementing our
domestic business strategy.  There are additional risks associated
with the increase of our international business, such as changes in regulatory
requirements and currency exchange controls.  See “Risk Factors” in
Item 1A of this Annual Report on Form 10-K.





·
            Pursuing
      Strategic Acquisitions


Our
management team has a solid track record of successfully identifying, acquiring
and integrating new brands and we will continue to investigate the acquisition
of highly complementary, recognized brands in attractive categories and
channels.  For example, during 2007 we purchased the Wartner brand of
over-the-counter wart treatment products to augment our ownership of Compound W, the number two
selling brand in the wart treatment category.  Additionally, during
2006, we purchased theChore
Boy brand, which competes in the scrubber and sponge sector of the
household cleaning segment, and The Doctor’s brand, which
competes in the dental accessories sector of the oral health category, where we
previously had a limited presence.  While we believe that there will
continue to be a strong pipeline of acquisition candidates for us to
investigate, strategic fit and relative cost are of the utmost importance in our
decision to pursue such opportunities.  We believe our business model
will allow us to integrate any future acquisitions in an efficient manner, while
also providing opportunities to realize significant cost
savings.  However, there is a risk that our operating results could be
adversely affected in the event we do not realize all of the anticipated
operating synergies and cost savings from future acquisitions, we do not
successfully integrate such acquisitions or we pay too much for these
acquisitions.  Provisions in our senior credit facility and the
indenture governing our senior subordinated notes may also limit our ability to
engage in strategic acquisitions.





Market
Position





During
2008, approximately 78% of our net revenues were from brands with a number one
or number two market position, compared with approximately 77% and 74% during
2007 and 2006, respectively.  Such brands includeChloraseptic,Clear Eyes,Chore Boy, Comet,Compound W,Cutex, Dermoplast,The Doctor’sandNew-Skin.





See the
“Business” section on page 1 of this document for information regarding market
share and ACV calculations.








Our
History and Accomplishments





We were
originally formed in 1996 as a joint venture of Medtech Labs and The Shansby
Group (a private equity firm), to acquire over-the-counter drug brands from
American Home Products.  Since 2001, our portfolio of brand name
products has expanded from over-the-counter healthcare to include household
cleaning and personal care products.  We have added brands to our
portfolio principally by acquiring strong and well-recognized brands from larger
consumer products and pharmaceutical companies.  In February 2004,
GTCR Golder Rauner II, LLC (“GTCR”), a private equity firm, acquired our
business from the owners of Medtech Labs and The Shansby Group.  In
addition, we acquired the Spic & Span business in March 2004.





In April
2004, we acquired Bonita Bay Holdings, Inc., the parent holding company of
Prestige Brands International, Inc., which conducted its business under the
“Prestige” name.  After we completed the Bonita Bay




-5-


acquisition,
we began to conduct our business under the “Prestige” name as
well.  The Bonita Bay brand portfolio included Chloraseptic, Comet, Clear
Eyes andMurine.





In
October 2004, we acquired the Little Remedies brand of
pediatric over-the-counter healthcare products through our purchase of Vetco,
Inc.  Products offered under the Little Remedies brand
includeLittle Noses®
nasal products,Little
Tummys digestive health products,Little Colds® cough/cold
remedies andLittleRemedies
New Parents Survival Kits.  TheLittle Remedies products
deliver relief from common childhood ailments without unnecessary additives such
as saccharin, alcohol, artificial flavors, coloring dyes or harmful
preservatives.





In
February 2005, we raised $448.0 million through an initial public offering of
28.0 million shares of common stock.  We used the net proceeds of the
offering ($416.8 million), plus $3.0 million from our revolving credit facility
and $8.8 million of cash on hand to (i) repay $100.0 million of our existing
senior indebtedness, (ii) redeem $84.0 million in aggregate principal amount of
our existing 9 1/4% senior subordinated notes, (iii) repurchase an aggregate of
4.7 million shares of our common stock held by the investment funds affiliated
with GTCR and TCW/Crescent Mezzanine, LLC (“TWC/Crescent”) for $30.2 million,
and (iv) redeem all outstanding senior preferred units and class B preferred
units of one of our subsidiaries for $199.8 million.





In
October 2005, we acquired the “Chore Boy” brand of metal
cleaning pads, scrubbing sponges, and non-metal soap pads.  The brand
has over 84 years of history in the scouring pad and cleaning accessories
categories.





In
November 2005, we acquired Dental Concepts LLC (“Dental Concepts”), a marketer
of therapeutic oral care products sold under “The Doctor’s”
brand.  The business is driven primarily by two niche segments,
bruxism (nighttime teeth grinding) and interdental cleaning.  Its
products include The
Doctor’s NightGuard Dental Protector,
the first FDA cleared over-the-counter treatment for bruxism and The Doctor’s BrushPicks,which are
disposable interdental toothpicks.





In
September 2006, we acquired Wartner USA B.V. (“Wartner”), the owner of the Wartnerbrand of
over-the-counter wart treatment products.  The Company expects that
the Wartner brand,
which is the number three brand in the United States over-the-counter wart
treatment category, will continue to enhance the Company’s market position in
the category, complementing Compound W.





While we
did not make any strategic acquisitions in 2008, we repaid $52.1 million of our
senior debt with free cash flow generated from operations.  This
followed $26.4 million in debt reduction during the second half of
2007.  These debt repayments reduce our interest costs on a
going-forward basis, and favorably affect our interest coverage and our
debt-to-equity ratios.





Products





We
conduct our operations through three principal business segments:





·
            Over-the-counter
      healthcare,


·
            Household
      cleaning, and


·
            Personal
      care.




Over-the-Counter
Healthcare Segment
 
 Our
portfolio of over-the-counter healthcare products consists primarily ofClear Eyes, Murine, Chloraseptic,
Compound W, Wartner, theLittle Remedies line of
pediatric healthcare products, The Doctor’s brand of oral
care products and first aid products such asNew-Skin andDermoplast.  Our
other brands in this category includePercogesic®, Momentum®, Freezone®,
Mosco®, Outgro®,
Sleep-Eze®andCompoz®.In 2008, the over-the-counter healthcare segment
accounted for 56.2 % of our revenues compared to 54.8% and 54.3% in 2007 and
2006, respectively.





-6-


Clear
Eyes


Clear Eyes, with an ACV of
88%, has been marketed as an effective eye care product that helps take redness
away and helps moisturize the eye. In 2008, we launched Clear Eyes for Itchy Eyes to
address eye symptoms related to allergies. In February 2007, we introduced Clear EyesMaximum Redness Relief,
while in February 2006, we introduced Clear Eyes Triple Action
Relief.  Clear Eyes
isamong the leading brands in the over-the-counter personal eye care
category.  The 0.5 oz. size ofClear Eyes redness relief
eye drops is the number two selling product in the eye redness relief category
andClear Eyes is the
number two brand in that category with 15.5 % market share.





Murine


Murine has been on store
shelves for over 100 years and is the leading brand in the over-the-counter ear
care category.  Murine products consist of
lubricating, soothing eye drops and ear wax removal aids.  MurineEar Care is the
leading brand in the over-the-counter ear care category with a market share of
21.3% up from the number three brands with a 13.4 % market share in
2007.  The ear drop category is composed of products that loosen
earwax and treat trapped water (swimmer’s ear) and ear aches.  In
2008, we expanded our market share in the ear care category with the
introduction of MurineEarigate, Ear
Cleaning System, a natural and hypoallergenic wax removal system with a patented
“reverse spray action” that safely rinses away ear wax build-up without harming
the user’s sensitive eardrums.





Chloraseptic


Chloraseptic was originally
developed by a dentist in 1957 to relieve sore throats and mouth pain.Chloraseptic’s
6 oz. cherry liquid sore throat spray is the number one selling product in
the sore throat liquids/sprays segment.  TheChloraseptic brand has an
ACV of 96% and is number one in sore throat liquids/sprays with a 42.9% market
share.





Historically,Chloraseptic products were
limited to sore throat lozenges and traditional sore throat sprays that were
stored and used at home.  In 2006, we introduced our first dual-action
product, Sugar Free
Chloraseptic Sore Throat plus Cough Lozenges.  In 2007, we
launched another dual action product, Chloraseptic Center-Filled
Sore Throat Plus Coating Protection lozenges, designed to stop sore throat pain
fast, and to soothe sore throats with the unique center-filled technology, the
only product of its kind in the sore throat segment.  And, in 2009,
Chloraseptic is
launching Chloraseptic
Allergen Block, an FDA cleared, patented topical gel that helps block allergens
on contact at the point of entry, the nose, to help prevent runny nose, sneezing
and nasal congestion. These product introductions enable us to marketChloraseptic products as a
system, encourage consumers to buy multiple types ofChloraseptic products, and
increase volume for the entire product line.





Compound
W


Compound W has a long
heritage; its wart removal products having been introduced almost 50 years
ago.  Compound
W products are specially designed to provide relief from common and
plantar warts and are sold in multiple forms of treatment depending on the
consumer’s need, including Fast-Acting Liquid, Fast-Acting Gel, One Step Pads
for Kids, One Step Pads for Adults and Freeze Off®.  We believe
thatCompound W is one
of the most trusted names in wart removal.





Compound W is the number two
wart removal brand in the United States with a 33.4% market share and an ACV of
90%.  SinceCompound
W’s acquisition, we have successfully expanded the wart remover category
and enhanced the value associated with theCompound W brand by
introducing several new products, such as CompoundWFreeze Off, Fast Acting
Liquid, One Step Pads for Kids, Waterproof One Step Pads and Invisible Strips
Pads.  CompoundWFreeze
Off, a cryogenic wart removal product, has achieved high trade acceptance,
as it allows
consumers to use a wart freezing treatment similar to that used by
doctors. 
 Wartner
 Wartner is the number three
brand in the United States in the wart removal category with a 10.2% share of
the cryogenic segment and an ACV rating of 60%.  Launched in 2003,
Wartner is recognized
by consumers and the trade as the first ever over-the-counter wart freezing
(cryogenic therapy) treatment in the U. S and Canada.
 
 The
Doctor’s
 The Doctor’s is a line of
products designed to help consumers that are highly motivated to maintain good
oral




-7-


hygiene
in between dental office visits.  The product line was part of the
2006 acquisition of Dental Concepts LLC.  The market is driven
primarily by two niche segments, bruxism (nighttime teeth grinding) and
interdental cleaning.  The Doctor’s NightGuard Dental Protector
was the first FDA cleared over-the-counter treatment for bruxism and The Doctor’s BrushPicks are disposable
interdental toothpicks.  The Doctor’s OraPik is a
nondisposable, interdental pick and mirror.





Little
Remedies


Little Remedies is a full
line of pediatric over-the-counter products that contain no alcohol, saccharin,
artificial flavors or coloring dyes including: (i) Little Noses, a product line
consisting of saline nasal spray/drops, decongestant nose drops, a nasal
aspirator for the removal of mucous from nasal passages and moisturizing nasal
gel, (ii) Little Colds,
aproduct line
consisting of a multi-symptom cold relief formula, sore throat reliefSaf-T-Pops®, a cough relief
formula, and a combined decongestant plus cough relief formula, and (iii) Little Tummys, a product line
consisting of gas relief drops, laxative drops, a nausea relief aid, as well as
the recently introduced gripe water, an herbal supplement used to ease
discomfort often associated with colic and hiccups.  In 2009, Little Remedies is launching
Little AllergiesTM
Allergen Block, leveraging the same technology as ChlorasepticTM
Allergen Block, in a drug free formulation that blocks allergens on contact to
help prevent allergic symptoms like runny nose, sneezing and nasal
congestion.





New-Skin


New-Skin, believed to have
originated over 100 years ago, consists of liquid bandages that are designed to
replace traditional bandages in an effective and easy to use form for the
protection of small cuts and scrapes.  EachNew-Skin product works by
forming a thin, clear, protective covering after it is applied to the skin.New-Skin competes
in the liquid bandage segment of the first aid bandage category where it has a
46.6% market share and an 81% ACV.





Dermoplast


Dermoplast is an aerosol
spray anesthetic for minor topical pain that was traditionally a “hospital-only”
brand dispensed to mothers after giving birth.  The primary use in
hospitals is for post episiotomy pain, post-partum hemorrhoid pain, and for the
relief of female genital itching.





The
introduction of retail versions of the product has approximately doubled the
size of the business.  In addition to the traditional hospital
uses,Dermoplast offers
sanitary, convenient first aid relief for pain and itching from minor skin
irritations, including sunburn, insect bites, minor cuts, scrapes and
burns.  Dermoplast is currently
offered in two formulas: regular strength and antibacterial
strength.  In February 2006, we introduced Dermoplast Poison Ivy
Treatment as the only poison ivy wash that also contains over-the-counter
medicine. Dermoplast enjoys significant
distribution across the drug and mass merchandise channels, with an ACV of
63%.






Household
Cleaning Segment




Our
portfolio of household cleaning brands includes theComet, Chore Boy and Spic and Spanbrands.  In 2008, the household cleaning segment accounted for
37.1% of our revenues, compared with 37.4% and 36.3% for 2007 and 2006,
respectively.





Comet


Comet was originally
introduced in 1956 and is one of the most widely recognized household cleaning
brands, with an ACV of 99%.  Comet competes in the
abrasive and non-abrasive tub and tile cleaner sub-category of the household
cleaning category that includes abrasive powders and liquids and non-abrasive
sprays.  Comet products include
several varieties of cleaning powders, sprays and cream, both abrasive and
non-abrasive.  The non-abrasive tub and tile cleaner segment is more
fragmented and competitive than the abrasive sector and we havebeen attempting,
through focused advertising and promotions, including free-standing insert
coupons and television advertising, to build momentum in our efforts to increase
Comet’s market share in
the non-abrasive tub and tile cleaner sector. 
 We have
expanded the brand’s distribution, increased advertising and promotion and
implemented focused marketing initiatives.  During 2008, we introduced
Comet SprayGel, a
unique chlorine mildew stain remover




-8-


spray
product that sticks to mildew stains and offers increased cleaning power due to
its high viscosity.  Previously, we introduced new fragrances,
including Comet
Lavender Powder Abrasive Cleanser and Comet Orange.  We
have also extended the brand into underdeveloped demographic targets, and
employed new inverted bottle packaging, which improves evacuation and ease of
use, for Comet Soft
Cleanser Cream.  Additionally, multi-packs have been introduced in the
warehouse club trade class extending the brand’s distribution.





Chore
Boy


Chore Boy scrubbing pads and
sponges were initially launched in the 1920's.  Over the years the
line has grown to include metal and non-metal scrubbers that are used for a
variety of household cleaning tasks.  While many of the brand’s
products find use in the kitchen, with cooking clean up being the primary use,
they are also used in clean up jobs in the home work shop, garage, and other
areas, including outdoor grill cleaning.  The newest additions to the
line, launched in 2004, consist of patented mesh materials that clean most
surfaces without scratching.  Chore Boy products are
currently sold in food and drug stores, mass merchandisers, and in hardware and
convenience stores.





Spic
and Span


Spic and Span was introduced
in 1925 and is marketed as the complete home cleaner with three product lines
consisting of (i) dilutables, (ii) an anti-bacterial hard surface spray for
counter tops and (iii) glass cleaners.  Each of these products can be
used for multi-room and multi-surface cleaning.  Following our
acquisition of the brand, the product line has grown from eight to 33 separate
items and we have expanded distribution into new channels such as dollar
stores.








Personal
Care Segment





Our major
personal care brands include Denorex dandruff
shampoo,Cutex nail
products andPrell®
shampoo.  Other portfolio brands in this segment includeEZO® denture cushion,Oxipor VHC® psoriasis
lotion,Cloverine® skin
salve,Zincon®
medicated dandruff shampoo andKerodex® barrier cream.  The Company’s strategy has been to
de-emphasize the personal care segment, and partially as a result, it accounted
for 6.7% of our revenues in 2008 compared with 7.8% and 9.4% in 2007 and 2006,
respectively.





Denorex


Denorex was originally
launched in 1971 as an effective solution to scalp problems.  Denorex competes in the
therapeutic segment of the dandruff shampoo category and holds a 1.6% market
share.  The current lineup ofDenorex products includes
Daily, with gentle but effective relief for mild dandruff sufferers; Extra
Strength, for moderate dandruff sufferers; and for those with more serious
dandruff conditions, Therapeutic Strength with coal tar.





Cutex


Cutex is the leading branded
nail polish remover, with a 26.7% share of market.  Cutex, with an ACV rating of
91%, has products in two main categories: (i) liquids and (ii) convenience
implements, including Pads, Pump action bottle, and soon to be released Manicure
Correction Pens.  Cutex’s main competition
comes from a number of private label brands, which collectively have a 55.1%
market share.





Prell


Acquired
from The Procter & Gamble Company (“Procter & Gamble”) in 1999, Prell Shampoo was launched in
1947.  While the shampoo category is fragmented and populated by
hundreds of brands, Prell continues to have strong
brand recognition.  We believePrell has a small, but very
loyal, base of consumers who value its superior cleansing and foaming
properties; and who seek a premium shampoo at a more affordable price
point. 
 For
additional information concerning our business segments, please refer to Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operation and Note 17 to the Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K.




-9-


Marketing
and Sales





Our
marketing strategy is based upon the acquisition and the rejuvenation of
established consumer brands that possess what we believe to be significant brand
value and unrealized potential.  Our marketing objective is to
increase sales and market share by developing innovative new products and line
extensions and executing professionally designed, creative and cost-effective
advertising and promotional programs.  After we acquire a brand, we
implement a brand building strategy that uses the brand’s existing consumer
awareness to maximize sales of current products and provides a vehicle to drive
growth through product innovation.  This brand building process
involves the evaluation and enhancement of the existing brand name, the
development and introduction of innovative new products and the execution of
professionally designed support programs.  Recognizing that financial
resources are limited, we allocate our resources to focus on those brands that
we believe have the greatest opportunities for growth and financial
success.  Brand priorities vary from year-to-year and generally
revolve around new product introductions.





Customers





Our
senior management team and dedicated sales force strive to maintain
long-standing relationships with our top 50 domestic customers, which accounted
for approximately 80.9% of our combined gross sales for 2008 and 77.1% and 77.9%
for 2007 and 2006, respectively.  Our sales management team consists
of 15 people and is expected to grow in order to focus on our key customer
relationships.  We also contract with third-party sales management
enterprises that interface directly with our remaining customers and report
directly to members of our sales management team.





We enjoy
broad distribution across each of the major retail channels, including mass
merchandisers, drug, food, dollar and club stores.  The following
table sets forth the percentage of gross sales across our five major
distribution channels during the three-year period ended March 31,
2008:





Percentage
      of
              Gross
      Sales(1)Channel
      of Distribution
            
            2008
            
            
            2007
            
            
            2006Mass
            
            
            33.6
            %
            
            
            35.8
            %
            
            
            33.6
            %Food
            
            
            22.7
            
            
            
            23.3
            
            
            
            24.9Drug
            
            
            28.0
            
            
            
            25.6
            
            
            
            24.3Dollar
            
            
            8.3
            
            
            
            7.2
            
            
            
            7.8Club
            
            
            2.4
            
            
            
            2.2
            
            
            
            2.7Other
            
            
            5.0
            
            
            
            5.9
            
            
            
            6.7








(1)         Includes
estimates for some of our wholesale customers that service more than one
distribution channel.





Due to
the diversity of our product line, we believe that each of these channels is
important to our business and we continue to seek opportunities for growth in
each channel.





Our
principal customer relationships include Wal-Mart, Walgreens, CVS, Target and
Dollar General.  Gross sales to our top five and ten customers account
for 46% and 57%, respectively, in 2008 compared with approximately 43% and 53%,
respectively, in 2007 and approximately 41% and 51%, respectively, in
2006.  No single customer other than Wal-Mart accounted for more than
10% of our gross sales in any of those years and none of our other top five
customers accounted for less than 3% of our gross sales in any those
years.  Our top ten customers each purchase
products from essentially all of our major brands. 
 Our
strong customer relationships and product recognition provide us with a number
of important benefits including (i) minimization of slotting fees, (ii)
maximization of new product introductions, (iii) maximization of shelf space
prominence and (iv) minimization of cash collection days.  We believe
that management’s emphasis on strong customer relationships, speed and
flexibility, leading sales technology capabilities, including (i) electronic
data interchange, (ii) e-mail, (iii) the Internet, (iv) integrated retail
coverage, (v) consistent marketing support programs and (vi) ongoing product
innovation will continue to maximize our competitiveness in the increasingly
complex retail environment.




-10-


The
following table sets forth a list of our primary distribution channels and our
principal customers for each channel:





Distribution
      Channel
            
            Customers
            
            Distribution
      Channel
            
            CustomersMass
            
            Kmart
            
            Drug
            
            CVSMeijer
            
            
            
            Rite
      AidTarget
            
            
            
            WalgreensWal-MartDollar
            
            Dollar
      GeneralFood
            
            Ahold
            
            
            
            Dollar
      TreeKroger
            
            
            
            Family
      DollarPublixSafeway
            
            Club
            
            BJ’s
      Wholesale ClubSupervalu
            
            
            
            CostcoSam’s
      Club





Outsourcing
and Manufacturing





In order
to maximize our competitiveness and efficiently allocate our resources,
third-party manufacturers fulfill all of our manufacturing needs.  We
have found that contract manufacturing maximizes our flexibility and
responsiveness to industry and consumer trends while minimizing the need for
capital expenditures.  We select contract manufacturers based on their
core competencies and our perception of the best overall value, including
factors such as (i) depth of services, (ii) professionalism and integrity of the
management team, (iii) manufacturing flexibility, (iv) regulatory compliance and
(v) competitive pricing.  We also conduct thorough reviews of each
potential manufacturer’s facilities, quality standards, capacity and financial
stability.  We generally purchase only finished products from our
manufacturers.





Our
primary contract manufacturers provide comprehensive services from product
development through the manufacturing of finished goods.  They are
responsible for such matters as (i) production planning, (ii) product research
and development, (iii) procurement, (iv) production, (v) quality testing, and
(vi) almost all capital expenditures.  In most instances, we provide
our contract manufacturers with guidance in the areas of (i) product
development, (ii) performance criteria, (iii) regulatory guidance, (iv) sourcing
of packaging materials and (v) monthly master production
schedules.  This management approach results in minimal capital
expenditures and maximizes our cash flow, which is reinvested to support our
marketing initiatives, used to fund brand acquisitions or to repay outstanding
indebtedness.





We have
relationships with over 40 third-party manufacturers.  Of those, our
top 10 manufacturers produce items that accounted for 80% of our sales for 2008
compared to 78% in 2007.  We do not have long-term contracts with the
manufacturers of products of approximately 23% of our gross sales in
2008.  The lack of manufacturing agreements for these products exposes
us to the risk that the manufacturer could stop producing our products at any
time, for any reason or fail to provide us with the level of products we need to
meet our customers’ demands.  Should one or more of our manufacturers
stop producing product on our behalf, it could have a material adverse effect on
our business, financial condition and results from operations.





At March
31, 2008, suppliers for our key brands included (i) Procter &
Gamble, (ii) Access Business Group, (iii) Kolmar Canada and (iv)
Altaire Pharmaceuticals, Inc.  We enter
into manufacturing agreements for a majority of our products by sales volume,
each of which vary based on the capabilities of the third-party manufacturer and
the products being supplied.  These agreements explicitly outline the
manufacturer’s obligations and product specifications with respect to the brand
or brands being produced.  The purchase price of products under these
agreements is subject to change pursuant to the terms of these agreements due to
fluctuations in raw material, packaging and labor costs.  All of our
other products are manufactured on a purchase order basis which is generally
based on batch sizes and result in no long-term obligations or
commitments.




-11-


Warehousing
and Distribution





We
receive orders from retailers and/or brokers primarily by electronic data
interchange, which automatically enters each order into our computer systems and
then routes the order to our distribution center.  The distribution
center will, in turn, send a confirmation that the order was received, fill the
order and ship the order to the customer, while sending a shipment confirmation
to us.  Upon receipt of the confirmation, we send an invoice to the
customer.





We manage
product distribution in the mainland United States primarily through one
facility located in St. Louis, owned and operated by The Jacobson Companies
(“Jacobson”).  Jacobson handles all finished goods storage, as well as
the receipt and disposition of customer returns.  In addition,
Jacobson provides warehouse services, including without limitation, storage,
handling and shipping with respect to our full line of products, as well as
transportation services, including without limitation, (i) complete management
services, (ii) claims administration, (iii) proof of delivery, (iv) procurement,
(v) report generation, and (vi) automation and freight payment services with
respect to our full line of products.





If
Jacobson abruptly stopped providing warehousing or transportation services to
us, our business operations could suffer a temporary disruption while new
service providers are engaged.  We believe this process could be
completed quickly and any temporary disruption resulting therefrom would not be
likely to have a significant effect on our operating results and financial
condition.  However, a serious disruption, such as a flood or fire, to
our distribution center could damage our inventory and could materially impair
our ability to distribute our products to customers in a timely manner or at a
reasonable cost.  We could incur significantly higher costs and
experience longer lead times associated with the distribution of our products to
our customers during the time required to reopen or replace our distribution
center.  As a result, any such serious or prolonged disruption could
have a material adverse effect on our business, financial condition and results
from operations.





Competition





The
business of selling brand name consumer products in the over-the-counter
healthcare, household cleaning and personal care categories is highly
competitive.  These markets include numerous national and global
manufacturers, distributors, marketers and retailers that actively compete for
consumers’ business both in the United States and abroad.  Many of
these competitors are larger and have substantially greater research and
development and financial resources than we do, and may therefore have the
ability to spend more aggressively on advertising and marketing and research and
development, and to respond more effectively to changing business and economic
conditions.  If this were to occur, our sales, operating results and
profitability could be adversely affected.





Our
principal competitors vary by industry category.  Competitors in the
over-the counter healthcare category include Johnson & Johnson, maker
ofVisine®, which
competes with ourClear
Eyes and Murine
brands; McNeil-PPC, maker ofTylenol® Sore Throat, Procter & Gamble, maker of Vicks®, and Combe
Incorporated, maker of Cepacol®, each of which
compete with ourChloraseptic brand.  Other competitors in the over-the counter
healthcare category include Schering-Plough, maker ofDr. Scholl’s®, which
competes with ourCompound
W and Wartner
brands; Johnson & Johnson, maker ofBAND-AID® Brand Liquid
Bandage, which competes with ourNew-Skin brand;
GlaxoSmithKline, maker ofDebrox®, which competes with ourMurine ear care brand;
Sunstar America, Inc., maker of GUM® line of oral care
products; as well as DenTek® Oral Care, Inc., Power Products, Inc. and Ranir
LLC, each of which markets a dental protector for nighttime teeth grinding,
which competes with The
Doctor’s NightGuard Dental
Protector.




Competitors
in the household cleaning category include Henkel, maker ofSoft Scrub®, and Clorox,
maker ofTilex®, each
of which competes with ourComet brand.  Additionally, Clorox’sPine Sol® and Procter &
Gamble’s Mr. Clean®
compete with ourSpic and
Span brand while 3M, maker of Scotch-Brite® and O-Cel-O®, and Clorox’s SOS®, compete with our Chore Boy brand.





Competitors
in the personal care category include Johnson & Johnson, maker ofT-Gel® shampoo, and Chattem,
maker of Selsun Blue®,
which compete with ourDenorex brand, as well as Coty, Inc., maker ofSally Hansen®, which
competes with ourCutex
brand.





-12-


We
compete on the basis of numerous factors, including brand recognition, product
quality, performance, price and product availability at the retail
level.  Advertising, promotion, merchandising and packaging, the
timing of new product introductions and line extensions also have a significant
impact on customers’ buying decisions and, as a result, on our
sales.  The structure and quality of our sales force, as well as
sell-through of our products, affects in-store position, wall display space and
inventory levels in retail outlets.  If we are unable to maintain the
inventory levels and in-store positioning of our products in retail stores, our
sales and operating results will be adversely affected.  Our markets
are also highly sensitive to the introduction of new products, which may
rapidly capture a significant share of the market.  An increase in the
amount of product introductions by our competitors could have a material adverse
effect on our business, financial condition and results from
operations.








Regulation





Product
Regulation


The
formulation, manufacturing, packaging, labeling, distribution, importation, sale
and storage of our products are subject to extensive regulation by various
federal agencies, including the FDA, the Federal Trade Commission (“FTC”), the
Consumer Product Safety Commission (“CPSC”), the Environmental Protection Agency
(“EPA”), and by various agencies of the states, localities and foreign countries
in which our products are manufactured, distributed and sold.  Our
Regulatory Team is guided by a senior member of management and staffed by
individuals with appropriate legal and regulatory experience.  Our
Regulatory and Operations teams work closely with our third-party manufacturers
on quality related matters while we monitor their compliance with FDA
regulations and perform periodic audits to ensure such
compliance.  This continual evaluation process ensures that our
manufacturing processes and products are of the highest quality and in
compliance with all known regulatory requirements.  When and if the
FDA chooses to audit a particular manufacturing facility, we are required to be
notified immediately and updated on the progress of the audit as it
proceeds.  If we or our manufacturers fail to comply with applicable
regulations, we could become subject to significant claims or penalties or be
required to discontinue the sale of the non-compliant product, which could have
a material adverse effect our business, financial condition and results from
operations.  In addition, the adoption of new regulations or changes
in the interpretations of existing regulations may result in significant
additional compliance costs or discontinuation of product sales and may also
have a material adverse effect on our business, financial condition and results
from operations.





All of
our over-the-counter drug products are regulated pursuant to the FDA’s monograph
system.  The monographs, both tentative and final, set out the active
ingredients and labeling indications that are permitted for certain broad
categories of over-the-counter drug products.  When the FDA has
finalized a particular monograph, it has concluded that a properly labeled
product formulation is generally recognized as safe and effective and not
misbranded.  A tentative final monograph indicates that the FDA has
not made a final determination about products in a category to establish safety
and efficacy for a product and its uses.  However, unless there is a
serious safety or efficacy issue, the FDA typically will exercise enforcement
discretion and permit companies to sell products conforming to a tentative final
monograph until the final monograph is published.  Products that
comply with either final or tentative final monograph standards do not require
pre-market approval from the FDA.





The
Company’s over-the-counter healthcare products that contain a medical device are
regulated by FDA through a system which usually involves pre-market
clearance.  During the review process, the FDA makes an affirmative
determination as to the sufficiency of the label directions, cautions and
warnings for the medical devices in question.




In
accordance with the Federal Food, Drug and Cosmetic Act (“FDC Act”) and FDA
regulations, the manufacturing processes of our third-party drug and device
manufacturers must also comply with the FDA’s current Good Manufacturing
Processes (“cGMPs”).  The FDA inspects our facilities and those of our
third-party manufacturers periodically to determine that both the Company and
our third-party manufacturers are complying with cGMPs.
 
 In
October 2007, we removed two medicated pediatric cough and cold products
marketed under the Little
Remedies brand from the marketplace.  This action was part of
an industry-wide voluntary withdrawal of these items pending the final
recommendations of an FDA advisory board meeting to review the safety and
efficacy of





-13-


these
products.  We are planning to reintroduce those products into the
marketplace with revised packaging, labeling, directions and warnings that we
believe will be in compliance with the FDA’s regulatory
requirements.  We anticipate that FDA will provide guidance on the
labeling no later than the end of June 2008.





Other
Regulations


We are
also subject to a variety of other regulations in various foreign markets,
including regulations pertaining to import/export regulations and antitrust
issues.  To the extent we decide to commence or expand operations in
additional countries, we may be required to obtain an approval, license or
certification from the country’s ministry of health or comparable
agency.  We must also comply with product labeling and packaging
regulations that may vary from country-to-country.  Government
regulations in both our domestic and international markets can delay or prevent
the introduction, or require the reformulation or withdrawal, of some of our
products.  Our failure to comply with these regulations can result in
a product being removed from sale in a particular market, either temporarily or
permanently.  In addition, we are subject to FTC and state
regulations, as well as foreign regulations, relating to our product claims and
advertising.  If we fail to comply with these regulations, we could be
subject to enforcement actions and the imposition of penalties which could have
a material adverse effect on our business, financial condition and results from
operations.




Certain
of our household cleaning products are considered pesticides under the Federal
Insecticide, Fungicide and Rodenticide Act (“FIFRA”).  Generally
speaking, any substance intended for preventing, destroying, repelling, or
mitigating any pest (which includes bacteria) is considered to be a pesticide
under FIFRA.  We market and distribute certain products under our
Cometand Spic and Span brands which
make antibacterial and/or disinfectant claims.  Due to the
antibacterial and/or disinfectant claims on certain of the Comet and Spic and Span products, such
products are considered to be pesticides under FIFRA and are required to be
registered with the EPA and contain certain disclosures on the product
labels.  In addition, the contract manufacturers from which we source
these products must be registered with the EPA.  Our Comet and Spic and Span products that
make antibacterial and/or disinfectant claims are also subject to state
regulations and the rules and regulations of any foreign jurisdictions in which
these products are sold.


Intellectual
Property





We own a
number of trademark registrations and applications in the United States, Canada
and other foreign countries.  The following are some of the most
important registered trademarks we own in the United States and/or Canada:Chloraseptic, Chore Boy, Clear
Eyes, Cinch, Cloverine, Comet, Compound W, Freeze Off, Compoz®, Cutex, The Doctor’s
Brushpicks, Denorex, Dermoplast, Essential Care®, Freezone®, Kerodex®, Little
Remedies, Longlast®, Momentum®, Mosco®, Murine, New-Skin, Outgro®, Oxipor VHC®,
Percogesic®, Prell®, Sleep-Eze®, Spic and Span, Wartner, Vacuum Grip®
andZincon®.  In addition, we have exclusive royalty bearing
licenses to use theEZO® and Earigate trademarks in the
United States which expire on December 31, 2012 and November 9, 2016,
respectively.  While we own the U.S. trademark registration forKerodex, we have an
obligation to pay royalties to Unilever/Scientific with respect to the
manufacture and sale of barrier creams sold in the United States under theKerodex
trademark.  This royalty obligation will continue as long as we make,
use or sell products utilizing the Kerodex trademark in the
United States.





Our
trademarks and trade names are how we convey that the products we sell are
“brand name” products.  Our ownership of these trademarks and trade
names is very important to our business as it allows us to compete based on the
value and goodwill associated with these marks.  We may also license
others to use these marks.  Additionally, we own or license patents on
innovative and proprietary technology.  Such patents evidence the
unique nature of our products, provide us with exclusivity and afford us
protection from the encroachment of others.  Enforcing our rights
represented by these trademarks, trade names and patents is critical to our
business, but is expensive.  If we are not able to effectively enforce
our rights, others may be able to dilute our trademarks, trade names and patents
and diminish the value associated with our brands and technologies, which could
have a material adverse effect on our business, financial condition and results
from operations.





Other
intellectual property rights were acquired from Procter & Gamble and Abbott
Laboratories when we acquired the trademarks related to theComet,Chloraseptic,Clear Eyes,Murine andPrell product lines;
however, we did not in all cases obtain title to all of the intellectual
property used to manufacture and sell those products.  Therefore, we
are dependent upon Procter & Gamble and other third parties for
intellectual property used in the


-14-


manufacture
and sale of certain of our products.




We have
licensed to Procter & Gamble the right to use theComet, Spic and Span
andChlorinol®
trademarks in the commercial/institutional/industrial segment in the United
States and Canada until 2019.  We have also licensed to Procter &
Gamble the Comet and
Chlorinol brands in
Russia and specified Eastern European countries until 2015.





Seasonality





The first
quarter of our fiscal year typically has the lowest level of revenue due to the
seasonal nature of certain of our brands relative to the summer and winter
months.  In addition, the first quarter is the least profitable
quarter due to the increased advertising and promotional spending to support
those brands with a summer selling season, such as Compound W, Wartnerand New-Skin.  The
increased level of advertising and promotional campaigns in the third quarter
influence sales of Chloraseptic products during
the fourth quarter cough/cold winter months.  Additionally, the fourth
quarter typically has the lowest level of advertising and promotional spending
as a percent of revenue.





Employees





We
employed 93 full time individuals as of March 31, 2008.  None of our
employees is a party to a collective bargaining agreement.  Management
believes that its relations with its employees are good.





Backlog
Orders





The
Company had no backlog orders at March 31, 2007 or 2008.





Available
Information





Our
Internet address is www.prestigebrandsinc.com.  We make available free
of charge on or through our Internet website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
those reports, and the Proxy Statement for our annual stockholders’ meetings, as
soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission (the
“SEC”).  The information found on our website shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Annual Report on Form 10-K into any filing under the Securities Act of
1933, as amended (the “Securities Act”), or under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and shall not otherwise be deemed filed
under such Acts.  Information on our Internet website does not
constitute a part of this Annual Report on Form 10-K and is not incorporated
herein by reference.





We have
adopted a Code of Conduct Policy, Code of Ethics for Senior Financial Employees,
Complaint Procedures for Accounting and Auditing Matters, Corporate Governance
Guidelines, Audit Committee Pre-Approval Policy, and Charters for our Audit,
Compensation, Nominating and Governance, and Strategic Planning Committees, as
well as a Related Persons Transaction Policy and Stock Ownership
Guidelines.  We will provide to any person without charge, upon
request, a copy of the foregoing materials.  Any requests for the
foregoing documents from us should be made in writing to:





Prestige
Brands Holdings, Inc.


90 North
Broadway


Irvington,
New York 10533


Attention:
Secretary





We intend
to disclose future amendments to the provisions of the foregoing documents,
policies and guidelines and waivers therefrom, if any, on our Internet website
and/or through the filing of a Current Report on Form 8-K with the SEC to the
extent required under the Exchange Act.





-15-


ITEM
      1A.
            RISK
    FACTORS





The
high level of competition in our industry, much of which comes from competitors
with greater resources, could adversely affect our business, financial condition
and results from operations.





The
business of selling brand name consumer products in the over-the-counter
healthcare, household cleaning and personal care categories is highly
competitive.  These markets include numerous manufacturers,
distributors, marketers and retailers that actively compete for consumers’
business both in the United States and abroad.  Many of these
competitors are larger and have substantially greater resources than we do, and
may therefore have the ability to spend more aggressively on research and
development, advertising and marketing, and to respond more effectively to
changing business and economic conditions.  If this were to occur, it
could have a material adverse effect on our business, financial condition and
results from operations.





Certain
of our product lines that account for a large percentage of our sales have a
small market share relative to our competitors.  For example,
whileClear Eyes has a
number two market share position of 15.5% within the allergy/redness eye drop
segment, its top competitor,Visine®, has a market share of 37.1%.  In contrast, certain of
our brands with number two market positions have a similar market share relative
to our competitors.  For example,Compound W has a number two
market position of 33.4% and its top competitor,Dr. Scholl’s Clear Away® and Freeze Away®, have a market
position of 41.1%.  Also, whileCutex is the number one
brand name nail polish remover with a market share of 26.7%, non-branded,
private label nail polish removers account, in the aggregate, for 55.1% of the
market.  Finally, while ourNew-Skin liquid bandage
product has a number one market position of 46.6%, the size of the liquid
bandage market is relatively small, particularly when compared to the much
larger bandage category.  See “Item 1. Business” section on page 1 of
this document for information regarding market share calculations.





We
compete for customers’ attention based on a number of factors, including brand
recognition, product quality, performance, price and product availability at the
retail level.  Advertising, promotion, merchandising and packaging,
the timing of new product introductions and line extensions also have a
significant impact on consumer buying decisions and, as a result, on our
sales.  The structure and quality of our sales force, as well as
sell-through of our products affects in-store position, wall display space and
inventory levels in retail stores.  If we are unable to maintain the
inventory levels and in-store positioning of our products in retail stores, our
sales and operating results will be adversely affected.  Our markets
also are highly sensitive to the introduction of new products, which may rapidly
capture a significant share of the market.  An increase in the number
of product innovations by our competitors could have a material adverse effect
on our business, financial condition and results from operations.





In
addition, competitors may attempt to gain market share by offering products at
prices at or below those typically offered by us.  Competitive pricing
may require us to reduce prices which may result in lost sales or a reduction of
our profit margins.  Future price adjustments, product changes or new
product introductions by our competitors or our inability to react with price
adjustments, product changes or new product introductions of our own could
result in a loss of market share which could have a material adverse effect on
our business, financial condition and results from operations.





We
depend on a limited number of customers with whom we have no long-term
agreements for a large portion of our gross sales and the loss of one or more of
these customers could reduce our gross sales and therefore, could have a
material adverse effect on our business, financial condition and results of
operations.





For 2008,
our top five and ten customers accounted for approximately 46% and 57%,
respectively, of our sales, compared with approximately 43% and 53% and 41% and
51% during 2007 and 2006, respectively.  Wal-Mart, which itself
accounted for approximately 23%, 24% and 21% of our sales in 2008, 2007 and
2006, respectively, is our only customer that accounted for 10% or more of our
sales.  We expect that for future periods, our top five and ten
customers, including Wal-Mart, will, in the aggregate, continue to account for a
large portion of our sales.  The loss of one or more of our top
customers, any significant decrease in sales to these customers, or a
significant decrease in our retail display space in any of these customers’
stores, could reduce our sales, and therefore, could have a material adverse
effect on our business, financial condition and results from
operations.





-16-


In
addition, our business is based primarily upon individual sales
orders.  We typically do not enter into long-term contracts with our
customers.  Accordingly, our customers could cease buying products
from us at any time and for any reason.  The fact that we do not have
long-term contracts with our customers means that we have no recourse in the
event a customer no longer wants to purchase products from us.  If a
significant number of our smaller customers, or any of our significant
customers, elect not to purchase products from us, our business, financial
condition and results from operations could be adversely affected.





We
depend on third-party manufacturers to produce the products we sell. If we are
unable to maintain these manufacturing relationships or fail to enter into
additional relationships, as necessary, we may be unable to meet customer demand
and our sales and profitability could suffer as a result.





All of
our products are produced by third-party manufacturers.  Our ability
to retain our current manufacturing relationships and engage in and successfully
transition to new relationships is critical to our ability to deliver quality
products to our customers in a timely manner.  Without adequate
supplies of quality merchandise, sales would decrease materially and our
business would suffer.  In the event that our primary third-party
manufacturers are unable or unwilling to ship products to us in a timely manner,
we would have to rely on secondary manufacturing relationships or identify and
qualify new manufacturing relationships.  We might not be able to
identify or qualify such manufacturers for existing or new products in a timely
manner and such manufacturers may not allocate sufficient capacity to us in
order that we may meet our commitments to customers.  In addition,
identifying alternative manufacturers without adequate lead times can compromise
required product validation and stability protocol, which may involve additional
manufacturing expense, delay in production or product disadvantage in the
marketplace.  The consequences of not securing adequate and timely
supplies of merchandise would negatively impact inventory levels, sales and
gross margins, and could have a material adverse effect on our business,
financial condition and results from operations.





In
addition, even if our current manufacturers continue to manufacture our
products, they may not maintain adequate quality controls, and therefore, may
not be able to continue to produce products that are consistent with our
standards or applicable regulatory requirements.  If we are forced to
rely on products of inferior quality, then our brand recognition and customer
satisfaction would likely suffer, leading to a reduction in
sales.  This sales reduction could have a material adverse effect on
our business, financial condition and results from operations.  These
manufacturers may also increase the cost of the products we purchase which could
adversely affect our margins in the event we are unable to pass along these
increased costs to our customers.  A situation such as this could also
have a material adverse effect on our business, financial condition and results
from operations.





At March
31, 2008, we had relationships with over 40 third-party
manufacturers.  Of those, our top 10 manufacturers produced items that
accounted for 80% of our sales for 2008.  We do not have long-term
contracts with the manufacturers of products that accounted for approximately
23% of our sales for 2008.  The fact that we do not have long-term
contracts with these manufacturers means that they could cease manufacturing
these products at any time and for any reason, which could have a material
adverse effect on our business, financial condition and results from
operations.





Disruption
in our St. Louis distribution center may prevent us from meeting customer demand
and our sales and profitability may suffer as a result.





We manage
our product distribution in the continental United States through one primary
distribution center in St. Louis, Missouri.  A serious disruption,
such as a flood or fire, to our primary distribution center could damage our
inventory and could materially impair our ability to distribute our products to
customers in a timely manner or at a reasonable cost.  We could incur
significantly higher costs and experience longer lead times during the time
required to reopen or replace our primary distribution center.  As a
result, any serious disruption could have a material adverse effect on our
business, financial condition and results from operations.





-17-


Achievement
of our strategic objectives requires the acquisition, or potentially the
disposition, of certain brands or product lines.  Efforts to effect
and integrate such acquisitions or dispositions may divert our managerial
resources away from our business operations.





Heretofore,
the majority of our growth has been driven by acquiring other brands and
companies.  At any given time, we may be engaged in discussions with
respect to possible acquisitions that are intended to enhance our product
portfolio, enable us to realize cost savings and further diversify our category,
customer and channel focus.  Our ability to successfully grow through
acquisitions depends on our ability to identify, negotiate, complete and
integrate suitable acquisition candidates and to obtain any necessary
financing.  These efforts could divert the attention of our management
and key personnel from our business operations.  If we complete
acquisitions, we may also experience:





·
            Difficulties
      achieving, or an inability to achieve, our expected
    returns,




·
            Difficulties
      in integrating any acquired companies, personnel and products into our
      existing business,




·
            Delays
      in realizing the benefits of the acquired company or
    products,




·
            Higher
      costs of integration than we
anticipated,




·
            Difficulties
      in retaining key employees of the acquired business who are necessary to
      manage the business,




·
            Difficulties
      in maintaining uniform standards, controls, procedures and policies
      throughout our acquired companies,
or




·
            Adverse
      customer or shareholder reaction to the
  acquisition.





In
addition, an acquisition could adversely affect our operating results as a
result of higher interest costs from the acquisition related debt and higher
amortization expenses related to the acquired intangible assets.  The
diversion of management’s attention to pursue acquisitions, or our failure to
successfully integrate acquired companies into our business, could have a
material adverse effect on our business, financial condition and results from
operations.





In the
event that we decide to sell a brand or product line, we may encounter
difficulty finding, or be unable to find, a buyer on acceptable terms in a
timely manner.  This could cause a delay in our efforts to achieve our
strategic objectives.





Our risks associated with doing
business internationally increases as we expand our international
footprint.





During
2008, 2007 and 2006, approximately 4.0%, 4.6% and 3.4%, respectively, of our
total revenues were attributable to our international business.  We
operate in several regions and countries where we have little or no experience,
and generally rely on brokers and distributors for the sale of our
products.  In addition to the risks associated with political
instability, changes in the outlook for economic prosperity in these countries
could adversely affect the sales of our products in these
countries.  Other risks of doing business internationally
include:





·
            Changes
      in the legislative or regulatory requirements of the countries or regions
      where we do business,




·
            Currency
      controls which restrict or prohibit the repatriation of earnings to the
      United States or fluctuations in foreign exchange rates resulting in
      unfavorable increases in the price of our products or cause increases in
      the cost of certain products purchased from our foreign third-party
      manufacturers,




·
            Regulatory
      oversight and its impact on our ability to get products registered for
      sale in certain markets,




·
            Potential
      trade restrictions and exchange
controls,




·
            Inability
      to protect our intellectual property rights in these markets,
      and




·
            Increased
      costs of compliance with general business and tax regulations in these
      countries or regions.





-18-


Regulatory
matters governing our industry could have a significant negative effect on our
sales and operating costs.





In both
our U.S. and foreign markets, we are affected by extensive laws, governmental
regulations, administrative determinations, court decisions and similar
constraints.  Such laws, regulations and other constraints exist at
the federal, state or local levels in the United States and at analogous levels
of government in foreign jurisdictions.





The
formulation, manufacturing, packaging, labeling, distribution, importation, sale
and storage of our products are subject to extensive regulation by various
federal agencies, including (i) the FDA, (ii) the FTC, (iii) the CPSC, (iv) the
EPA, and by (v) various agencies of the states, localities and foreign countries
in which our products are manufactured, distributed, stored and
sold.  If we or our third-party manufacturers fail to comply with
those regulations, we could become subject to enforcement actions, significant
penalties or claims, which could materially adversely affect our business,
financial condition and results from operations.  In addition, the
adoption of new regulations or changes in the interpretations of existing
regulations may result in significant compliance costs or the cessation of
product sales and may adversely affect the marketing of our products, resulting
in a significant loss of revenues which could have a material adverse effect on
our business, financial condition and results from operations.





The FDC
Act and FDA regulations require that the manufacturing processes of our
third-party manufacturers must also comply with the FDA’s cGMPs.  The
FDA inspects our facilities and those of our third-party manufacturers
periodically to determine if we and our third-party manufacturers are complying
with cGMPs.  A history of past compliance is not a guarantee that
future cGMPs will not mandate other compliance steps and associated
expense.





If we or
our third party-manufacturers fail to comply with federal, state or foreign
regulations, we could be required to:





·
            Suspend
      manufacturing operations,




·
            Modify
      product formulations or processes,




·
            Suspend
      the sale of products with non-complying
  specifications,




·
            Initiate
      product recalls, or




·
            Change
      product labeling, packaging or advertising or take other corrective
      action.





Any of
the foregoing actions could have a material adverse effect on our business,
financial condition and results from operations.





In
addition, our failure to comply with FTC or any other federal and state
regulations, or with similar regulations in foreign markets, that cover our
product claims and advertising, including direct claims and advertising by us,
may result in enforcement actions and imposition of penalties or otherwise
materially adversely affect the distribution and sale of our products, which
could have a material adverse effect on our business, financial condition and
results from operations.





Product
liability claims and related negative publicity could adversely affect our sales
and operating results.





We may be
required to pay for losses or injuries purportedly caused by our
products.  From time-to-time we have been and may again be subjected
to various product liability claims.  Claims could be based on
allegations that, among other things, our products contain contaminants, include
inadequate instructions or warnings regarding their use or inadequate warnings
concerning side effects and interactions with other substances.  For
example,Denorex
products contain coal tar which the State of California has determined allegedly
causes cancer. Consequently, in order to comply with California law and to
mitigate our risks, the Denorex packaging contains a
warning to that effect.  Any product liability claims may result in
negative publicity that may adversely affect our sales and operating
results.  Also, if one of our products is found to be defective we may
be required to recall it.  This may result in substantial costs and
negative publicity which may adversely affect our sales and operating
results.  Although we maintain, and require our suppliers and
third-party manufacturers to maintain, product




-19-


liability
insurance coverage, potential product liability claims may exceed the amount of
insurance coverage or potential product liability claims may be excluded under
the terms of the policy, which could have a material adverse effect on our
business, financial condition and results from operations.  In
addition, in the future we may not be able to obtain adequate insurance coverage
or we may be required to pay higher premiums and accept higher deductibles in
order to secure adequate insurance coverage.





If
we are unable to protect our intellectual property rights our ability to compete
effectively in the market for our products could be negatively
impacted.





The
market for our products depends to a significant extent upon the goodwill
associated with our trademarks, trade names and patents.  Our
trademarks and trade names convey that the products we sell are “brand name”
products.  We believe consumers ascribe value to our brands, some of
which are over 100 years old.  We own or license the material
trademark, trade names and patents used in connection with the packaging,
marketing and sale of our products.  These rights prevent our
competitors or new entrants to the market from using our valuable brand names
and technologies.  Therefore, trademark, trade name and patent
protection is critical to our business.  Although most of our material
intellectual property is registered in the United States and in applicable
foreign countries, we may not be successful in asserting
protection.  If we were to lose the exclusive right to use one or more
of our intellectual property rights, the loss of such exclusive right could have
a material adverse effect on our business, financial condition and results from
operations.





Other
parties may infringe on our intellectual property rights and may thereby dilute
the value of our brands in the marketplace.  Brand dilution or the
introduction of competitive brands could cause confusion in the marketplace and
adversely affect the value that consumers associate with our brands, and thereby
negatively impact our sales.  Any such infringement of our
intellectual property rights would also likely result in a commitment of our
time and resources, financial or otherwise, to protect these rights through
litigation or other means.  In addition, third parties may assert
claims against our intellectual property rights and we may not be able to
successfully resolve those claims causing us to lose our ability to use our
intellectual property that is the subject of those claims.  Such loss
could have a material adverse effect on our business, financial condition and
results from operations.  Furthermore, from time-to-time, we may be
involved in litigation in which we are enforcing or defending our intellectual
property rights which could require us to incur substantial fees and expenses
and have a material adverse effect on our business, financial condition and
results from operations.





Virtually
all of our assets consist of goodwill and intangibles.





As our
financial statements indicate, virtually all of our assets consist of goodwill
and intangibles, principally the trademarks, trade names and patents that we
have acquired.  In the event that the value of those assets became
impaired or our business is materially adversely affected in any way, we would
not have tangible assets that could be sold to repay our
liabilities.  As a result, our creditors and investors may not be able
to recoup the amount of the indebtedness that they have extended to us or the
amount they have invested in us.





We
depend on third parties for intellectual property relating to some of the
products we sell, and our inability to maintain or enter into future license
agreements may result in our failure to meet customer demand, which would
adversely affect our operating results.





We have
licenses or manufacturing agreements with third parties that own intellectual
property (e.g., formulae, copyrights, trademarks, trade dress, patents and other
technology) used in the manufacture and sale of certain of our
products.  In the event that any such license or manufacturing
agreement expires or is otherwise terminated, we will lose the right to use the
intellectual property covered by such license or agreement and will have to
develop or obtain rights to use other intellectual
property.  Similarly, our rights could be reduced if the applicable
licensor or third-party manufacturer fails to maintain the licensed intellectual
property because, in such event, our competitors could obtain the right to use
the intellectual property without restriction.  If this were to occur,
we might not be able to develop or obtain replacement intellectual property in a
timely manner.  Additionally, any modified products may not be
well-received by customers.  The consequences of losing the right to
use or having reduced rights to such intellectual property could negatively
impact our sales due to our failure to meet consumer demand for the affected
products or require us to incur costs for development of new or different
intellectual property, either of which could have a material adverse effect on
our business, financial condition and results




-20-


from
operations.  In addition, development of replacement products may be
time-consuming and ultimately may not be feasible.





We
depend on our key personnel and the loss of the services provided by any of our
executive officers or other key employees could harm our business and results of
operations.





Our
success depends to a significant degree upon the continued contributions of our
senior management, many of whom would be difficult to replace.  These
employees may voluntarily terminate their employment with us at any
time.  We may not be able to successfully retain existing personnel or
identify, hire and integrate new personnel.  While we believe we have
developed depth and experience among our key personnel, our business may be
adversely affected if one or more of these key individuals were to
leave.  We do not maintain any key-man or similar insurance policies
covering any of our senior management or key personnel.





Our
substantial indebtedness could adversely affect our financial condition and the
significant amount of cash we need to service our debt will not be available to
reinvest in our business.





At March
31, 2008, our total indebtedness, including current maturities, is approximately
$411.2 million.  Additionally, we have the ability to borrow up to
$200.0 million pursuant to our senior credit facility and $60.0 million pursuant
to our revolving credit facility.





However,
our substantial indebtedness could:





·
            Increase
      our vulnerability to general adverse economic and industry
      conditions,




·
            Limit
      our ability to engage in strategic
acquisitions,




·
            Require
      us to dedicate a substantial portion of our cash flow from operations
      toward repayment of our indebtedness, thereby reducing the availability of
      our cash flow to fund working capital, capital expenditures, acquisitions
      and investments and other general corporate
  purposes,




·
            Limit
      our flexibility in planning for, or reacting to, changes in our business
      and the markets in which we
operate,




·
            Place
      us at a competitive disadvantage compared to our competitors that have
      less debt, and




·
            Limit,
      among other things, our ability to borrow additional funds on favorable
      terms or at all.





The terms
of the indenture governing the 91⁄4% senior subordinated notes and the senior
credit facility allow us to issue and incur additional debt upon satisfaction of
conditions set forth in the respective agreements.  If new debt is
added to current debt levels, the related risks described above could
increase.





Our
operating flexibility is limited in significant respects by the restrictive
covenants in our senior credit facility and the indenture governing our senior
subordinated notes.




Our
senior credit facility and the indenture governing our senior subordinated notes
impose restrictions that could impede our ability to enter into certain
corporate transactions, as well as increase our vulnerability to adverse
economic and industry conditions by limiting our flexibility in planning for,
and reacting to, changes in our business and industry.  These
restrictions limit our ability to, among other things:





·
            Borrow
      money or issue guarantees,




·
            Pay
      dividends, repurchase stock from or make other restricted payments to
      stockholders,




·
            Make
      investments or acquisitions,




·
            Use
      assets as security in other
transactions,




·
            Sell
      assets or merge with or into other
companies,




·
            Enter
      into transactions with affiliates,




-21-


·
            Sell
      stock in our subsidiaries, and




·
            Direct
      our subsidiaries to pay dividends or make other payments to our
      company.





Our
ability to engage in these types of transactions is generally limited by the
terms of the senior credit facility and the indenture governing the senior
subordinated notes, even if we believe that a specific transaction would
positively contribute to our future growth, operating results or
profitability.  However, if we are able to enter into these types of
transactions under the terms of the senior credit facility and the indenture, or
if we obtain a waiver with respect to any specific transaction, that transaction
may cause our indebtedness to increase, may not result in the benefits we
anticipate or may cause us to incur greater costs or suffer greater disruptions
in our business than we anticipate, and could therefore, have a material adverse
effect on our business, financial condition and results from
operations.





In
addition, the senior credit facility requires us to maintain certain leverage,
interest and fixed charge coverage ratios.  Although we believe we can
continue to meet and/or maintain the financial ratios contained in our credit
agreement, our ability to do so may be affected by events outside our
control.  Covenants in our senior credit facility also require us to
use 100% of the proceeds we receive from debt issuances to repay outstanding
borrowings under our senior credit facility.  Any failure by us to
comply with the terms and conditions of the credit agreement and the indenture
governing the senior subordinated notes could have a material adverse effect on
our business, financial condition and results from operations.





The
senior credit facility and the indenture governing the senior subordinated notes
contain cross-default provisions that could result in the acceleration of all of
our indebtedness.





The
senior credit facility and the indenture governing the senior subordinated notes
contain provisions that allow the respective creditors to declare all
outstanding borrowings under one agreement to be immediately due and payable as
a result of a default under the other agreement.  Consequently, under
the senior credit facility, failure to make a payment required by the indenture
governing the senior subordinated notes, among other things, may lead to an
event of default under the senior credit facility.  Similarly, an
event of default or failure to make a required payment at maturity under the
senior credit facility, among other things, may lead to an event of default
under the indenture governing the senior subordinated notes.  If the
debt under the senior credit facility and indenture governing the senior
subordinated notes were to both be accelerated, the aggregate amount immediately
due and payable as of March 31, 2008 would have been approximately $411.2
million.  We presently do not have sufficient liquidity to repay these
borrowings in the event they were to be accelerated, and we may not have
sufficient liquidity in the future to do so.  Additionally, we may not
be able to borrow money from other lenders to enable us to refinance the
indebtedness.  At March 31, 2008, the book value of our current assets
was $85.4 million.  Although the book value of our total assets was
$1,049.2 million, approximately $955.6 million was in the form of intangible
assets, including goodwill of $308.9 million, a significant portion of which is
illiquid and may not be available to satisfy our creditors in the event our debt
is accelerated.





Any
failure to comply with the restrictions of the senior credit facility, the
indenture governing the senior subordinated notes or any other subsequent
financing agreements may result in an event of default.  Such default
may allow the creditors to accelerate the related debt, as well as any other
debt to which the cross-acceleration or cross-default provisions
apply.  In addition, the lenders may be able to terminate any
commitments they had made to supply us with additional funding.  As a
result, any default by us under our credit agreement, indenture governing the
senior subordinated notes or any other financing agreement, could have a
material adverse effect on our business, financial condition and results from
operations.





Litigation may adversely affect our business,
financial condition and results of operations.





Our
business is subject to the risk of litigation by employees, consumers,
suppliers, stockholders or others through private actions, class actions,
administrative proceedings, regulatory actions or other
litigation.  The outcome of litigation, particularly class action
lawsuits and regulatory actions, is difficult to assess or
quantify.  Plaintiffs in these types of lawsuits may seek recovery of
very large or indeterminate amounts, and the magnitude of the potential loss
relating to such lawsuits may remain unknown for substantial periods of
time.  The cost to defend current and future litigation may be
significant.  There may also be adverse publicity associated with
litigation that could decrease customer acceptance of our products, regardless
of whether the allegations are valid or




-22-


whether
we are ultimately found liable.  Conversely, we may be required to
initiate litigation against others to protect the value of our intellectual
property and the goodwill associated therewith.  These matters are
extremely time consuming and expensive, but absolutely necessary to maintain
enterprise value and safeguard our future.  As a result, litigation
may adversely affect our business, financial condition and results of
operations.





The
trading price of our common stock may be volatile.





The
trading price of our common stock could be subject to significant fluctuations
in response to several factors, some of which are beyond our control, including
(i) general stock market volatility, (ii) variations in our quarterly operating
results, (iii) our leveraged financial position, (iv) potential sales of
additional shares of our common stock, (v) general trends in the consumer
products industry, (vi) changes by securities analysts in their estimates or
investment ratings, (vii) the relative illiquidity of our common stock, (viii)
voluntary withdrawal or recall of products and (ix) news regarding litigation in
which we are or become involved.





Our
principal stockholders have the ability to significantly influence our business,
which may be disadvantageous to other stockholders and adversely affect the
trading price of our common stock.





Entities
affiliated with GTCR collectively own approximately 30.0% of our outstanding
common stock.  As a result, these stockholders, acting together, will
have the ability to exert substantial influence over all matters requiring
approval by our stockholders, including the election and removal of directors
and any proposed merger, consolidation or sale of all or substantially all of
our assets and other corporate transactions.  Subject to applicable
law, under our amended and restated certificate of incorporation, the GTCR
entities and non-employee directors will not have any duty to refrain from
engaging directly or indirectly in the same or similar business activities or
lines of business that we do.  In the event that any GTCR entity or
non-employee director, as the case may be, acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for itself and us,
the GTCR entity or non-employee director, as the case may be, will not have any
duty to communicate or offer such corporate opportunity to us and may pursue
such corporate opportunity for itself or direct such corporate opportunity to
another person.  This concentration of stock ownership also may make
it difficult for stockholders to replace management.  In addition,
this significant concentration of stock ownership may adversely affect the
trading price for our common stock because investors often perceive
disadvantages in owning stock in companies with stockholders who own significant
blocks of stock. This concentration of control could be disadvantageous to other
stockholders with interests different from those of our officers, directors and
principal stockholders and the trading price of shares of our common stock could
be adversely affected.





Substantial
sales of our common stock by either GTCR or management or the perception that
these sales could occur could cause the price of our common stock to
decline.





Sales of
substantial amounts of our common stock in the public market by the affiliates
of GTCR or management, or the perception that these sales could occur, could
adversely affect the price of our common stock and could impair our ability to
raise capital through the sale of additional equity
securities.  Pursuant to an agreement with GTCR, we filed a
Registration Statement on Form S-3 (“Form S-3”) with the SEC in December
2006.  We expect the Form S-3 to be declared effective by the SEC
in the near future and, once effective, GTCR will have the ability to sell
common stock, up to the maximum number of common shares registered, into the
public marketplace.  Such a sale could adversely affect the price of
our common stock.





As of the
date of the filing of this Annual Report on Form 10-K, at the request of GTCR,
we intend to request of the SEC that it declare the Form S-3 effective as soon
as possible.





We
have no current intention of paying dividends to holders of our common
stock.





We
presently intend to retain our earnings, if any, for use in our operations, to
facilitate strategic acquisitions, or to repay our outstanding indebtedness and
have no current intention of paying dividends to holders of our common
stock.  In addition, our debt instruments limit our ability to declare
and pay cash dividends on our common stock. As a result, your only opportunity
to achieve a return on your investment in our common stock will be if the market
price of our common stock appreciates and you sell your shares at a
profit.




-23-


Our
annual and quarterly results from operations may fluctuate significantly and
could fall below the expectations of securities analysts and investors due to a
number of factors, many of which are beyond our control, resulting in a decline
in the price of our securities.





Our
annual and quarterly results from operations may fluctuate significantly because
of several factors, including:





·
            Increases
      and decreases in average quarterly revenues and
    profitability,




·
            The
      rate at which we make acquisitions or develop new products and
      successfully market them,




·
            Our
      inability to increase the sales of our existing products and expand their
      distribution,




·
            Adverse
      regulatory or market events in our international
  markets,




·
            Litigation
      matters,




·
            Changes
      in consumer preferences and competitive conditions, including the effects
      of competitors’ operational, promotional or expansion
      activities,




·
            Seasonality
      of our products,




·
            Fluctuations
      in commodity prices, product costs, utilities and energy costs, prevailing
      wage rates, insurance costs and other
costs,




·
            Our
      ability to recruit, train and retain qualified employees, and the costs
      associated with those activities,




·
            Changes
      in advertising and promotional activities and expansion to new
      markets,




·
            Negative
      publicity relating to us and the products we
  sell,




·
            Unanticipated
      increases in infrastructure costs,




·
            Impairment
      of goodwill or long-lived assets,




·
            Changes
      in interest rates, and




·
            Changes
      in accounting, tax, regulatory or other rules applicable to our
      business.







Our
quarterly operating results and revenues may fluctuate as a result of any of
these or other factors. Accordingly, results for any one quarter are not
necessarily indicative of results to be expected for any other quarter or for
any year, and revenues for any particular future period may
decrease.  In the future, operating results may fall below the
expectations of securities analysts and investors.  In that event, the
market price of our outstanding securities could be adversely
impacted.





We
can be affected adversely and unexpectedly by the implementation of new, or
changes in the interpretation of existing, accounting principles generally
accepted in the United States of America (“GAAP”).





Our
financial reporting complies with GAAP, and GAAP is subject to change over time.
If new rules or interpretations of existing rules require us to change our
financial reporting, our financial condition and results from operations could
be adversely affected.





Identification
of a material weakness in internal controls over financial reporting may
adversely affect our financial results.





We are
subject to the ongoing internal control provisions of Section 404 of the
Sarbanes-Oxley Act of 2002 and the regulations promulgated
thereunder.  Those provisions provide for the identification and
reporting of material weaknesses in our system of internal controls over
financial reporting.  If such a material weakness is identified, it
could indicate a lack of controls adequate to generate accurate financial
statements.  We routinely assess our internal controls over financial
reporting, but we cannot assure you that we will be able to timely remediate any
material weaknesses that may be identified in future periods, or maintain all of
the controls necessary for continued compliance.  Likewise, we cannot
assure you that we will be able to retain sufficient skilled finance and
accounting personnel, especially in light of the increased demand for such
personnel among publicly-traded




-24-


companies.





Provisions
in our amended and restated certificate of incorporation and Delaware law may
discourage potential acquirers of our company, which could adversely affect the
value of our securities.





Our
amended and restated certificate of incorporation provides that our board of
directors is authorized to issue from time to time, without further stockholder
approval, up to 5.0 million shares of preferred stock in one or more series of
preferred stock issuances.  Our board of directors may establish the
number of shares to be included in each series of preferred stock and determine,
as applicable, the voting and other powers, designations, preferences, rights,
qualifications, limitations and restrictions for such series of preferred
stock.  The shares of preferred stock could have preferences over our
common stock with respect to dividends and liquidation rights.  We may
issue additional preferred stock in ways which may delay, defer or prevent a
change in control of the Company without further action by our
stockholders.  The shares of preferred stock may be issued with voting
rights that may adversely affect the voting power of the holders of our common
stock by increasing the number of outstanding shares having voting rights, and
by the creation of class or series voting rights.





Our
amended and restated certificate of incorporation contains additional provisions
that may have the effect of making it more difficult for a third party to
acquire or attempt to acquire control of our company.  In addition, we
are subject to certain provisions of Delaware law that limit, in some cases, our
ability to engage in certain business combinations with significant
stockholders.





These
provisions, either alone, or in combination with each other, give our current
directors and executive officers the ability to significantly influence the
outcome of a proposed acquisition of the Company.  These provisions
would apply even if an acquisition or other significant corporate transaction
was considered beneficial by some of our stockholders.  If a change in
control or change in management is delayed or prevented by these provisions, the
market price of our outstanding securities could be adversely
impacted.






ITEM 1B.
            UNRESOLVED STAFF
      COMMENTS




None.






ITEM 2.
            PROPERTIES





Our
corporate headquarters are located in Irvington, New York, a suburb of New York
City.  Primary functions undertaken at the Irvington facility include
senior management, marketing, sales, operations, quality control and regulatory
affairs, finance and legal.  The lease on our Irvington facility
expires on April 30, 2014.  We also have an administrative center in
Jackson, Wyoming.  Primary functions undertaken at the Jackson
facility include back office functions, such as invoicing, credit and
collection, general ledger and customer service.  The lease on the
Jackson facility expires on December 31, 2008; however, we have the option to
renew this lease on an annual basis.  We conduct business regarding
all of our business segments at each of the Irvington, New York and Jackson,
Wyoming facilities.





-25-
 ITEM 3.
              LEGAL
    PROCEEDINGS


Securities Class Action
Litigation





The
Company and certain of its officers and directors are defendants in a
consolidated securities class action lawsuit filed in the United States District
Court for the Southern District of New York (the “Consolidated
Action”).  The first of the six consolidated cases was filed on August
3, 2005.  Plaintiffs purport to represent a class of stockholders of
the Company who purchased shares between February 9, 2005 through November 15,
2005.  Plaintiffs also name as defendants the underwriters in the
Company’s initial public offering and a private equity fund that was a selling
stockholder in the offering.  The District Court has appointed a Lead
Plaintiff.  On December 23, 2005, the Lead Plaintiff filed a
Consolidated Class Action Complaint, which asserted claims under Sections 11,
12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b), 20(a) and 20A
of the Securities Exchange Act of 1934.  The Lead Plaintiff generally
alleged that the Company issued a series of materially false and misleading
statements in connection with its initial public offering and thereafter in
regard to the following areas: the accounting issues described in the Company’s
press release issued on or about November 15, 2005; and the alleged failure to
disclose that demand for certain of the Company’s products was declining and
that the Company was planning to withdraw several products from the
market.  Plaintiffs seek an unspecified amount of
damages.  The Company filed a motion to dismiss the Consolidated Class
Action Complaint in February 2006.  On July 10, 2006, the Court
dismissed all claims against the Company and the individual defendants arising
under the Securities Exchange Act of 1934.





On June
1, 2007, a hearing before the Court was held regarding Plaintiffs’ pending
motion for class certification in the Consolidated Action.  On
September 4, 2007, the United States District Court for the Southern District of
New York issued an Order certifying a class consisting of all persons who
purchased the common stock of the Company pursuant to, or traceable to, the
Company’s initial public offering on or about February 9, 2005 through November
15, 2005 and were damaged thereby.





On
January 8, 2008, the parties to the action engaged in mediation to explore the
terms of a potential settlement of the pending litigation; however, no
settlement agreement was reached during mediation.  A status
conference was held on February 8, 2008 and another status conference is
scheduled to be held on July 31, 2008.  While discovery in the action
has commenced and is continuing, the Company’s management continues to believe
that the remaining claims in the case are legally deficient and that it has
meritorious defenses to the claims that remain.  The Company intends
to vigorously defend against the claims remaining in the case; however, the
Company cannot, at this time, reasonably estimate the potential range of loss,
if any.





OraSure Technologies
Arbitration





On
September 28, 2006, OraSure Technologies, Inc. (“OraSure”) moved in the Supreme
Court of the State of New York for a preliminary injunction prohibiting the
Company from selling cryogenic wart removal products under the Wartner brand, which the
Company acquired on September 21, 2006.  OraSure was a supplier to the
Company for the Company’sCompound WFreeze Off business.  The distribution agreement
between the parties provides for mediation of contract disputes, followed by
arbitration, if necessary.  The contract in question had a term ending
in December 2007.  On October 30, 2006, the Court denied OraSure’s
motion for a preliminary injunction.  Subsequently, in a decision and
order dated December 20, 2006, the Court denied a motion by OraSure for a
rehearing regarding a preliminary injunction.  An appeal was filed by
OraSure in the Appellate Division of the Supreme Court of the State of New York
on January 29, 2007, and the Company filed a brief with the Court on February
28, 2007.  On May 17, 2007, the Appellate Division reversed the
decision of the Supreme Court of the State of New York and issued a preliminary
injunction prohibiting the marketing and selling of the Wartner brand by the Company
until the underlying arbitration with OraSure was concluded.  On May
21, 2007, the Company requested that the Appellate Division issue a stay of the
preliminary injunction, consider reargument of the Appellate Division’s decision
and grant a leave to appeal to the Court of Appeals of the State of New
York.  In response to the Company’s request for a stay of the
preliminary injunction, the Appellate Division issued a stay of the preliminary
injunction pending the Appellate Division’s consideration of the Company’s
motion to reargue and request for leave to appeal to the Court of
Appeals.





On July
12, 2007, the Appellate Division of the Supreme Court of the State of New York
issued an Order




-26-


affirming
the Order of the Supreme Court of the State of New York which denied OraSure’s
petition for a preliminary injunction that would have prohibited the Company
from selling cryogenic wart removal products under the Wartner brand.  In
addition, the Appellate Division dismissed OraSure’s appeal from the Supreme
Court’s Order which denied OraSure’s motion for reargument.  Based on
the foregoing, the Appellate Division held that a preliminary injunction was not
an appropriate remedy in the action and recalled and vacated its Order dated May
17, 2007, which granted a preliminary injunction.





At the
end of August 2007, the Company and OraSure participated in an arbitration
hearing at which each party presented its case to the arbitration
panel.  On October 22, 2007, the Company received notification from
the arbitrators that they had issued a Partial Final Award (the “Award”) in the
pending arbitration with OraSure.  The arbitrators acknowledged that
there was a technical breach of the non-compete clause in the Distribution
Agreement between the parties but OraSure’s proof of damages was speculative and
not supported by credible evidence.  Therefore, the arbitrators
awarded nominal damages to OraSure in the amount of One Dollar
($1.00).  In addition, the arbitrators awarded to OraSure counsel fees
and arbitrator compensation in an amount to be determined pursuant to further
proceedings.





The
arbitration panel also dismissed with prejudice OraSure’s remaining claims for
breach of the Distribution Agreement, OraSure’s request for injunctive relief
and the Company’s counterclaims, respectively.  Furthermore, the
arbitrators confirmed the Company's position that the Distribution Agreement
will terminate on December 31, 2007.





On
December 18, 2007, the arbitration panel concluded the arbitration by issuing a
Final Award for certain counsel fees and arbitrator compensation to be paid by
the Company.  Pursuant to the Final Award, the Company has made
payment to OraSure in an amount that did not have a material impact on the
Company’s results from operations for the year ended March 31,
2008.





DenTek
      Litigation





In April
2007, the Company filed a lawsuit in the U.S. District Court in the Southern
District of New York against DenTek Oral Care, Inc. (“DenTek”) alleging (i)
infringement of intellectual property associated with The Doctor’s NightGuardDental
Protector which is used for the protection of teeth from nighttime teeth
grinding; and (ii) the violation of unfair competition and consumer protection
laws.  On October 4, 2007, the Company filed a Second Amended
Complaint in which it named Kelly M. Kaplan, Raymond Duane and C.D.S.
Associates, Inc. as additional defendants in the action against DenTek and added
other claims to the previously filed complaint.  Ms. Kaplan and Mr.
Duane were formerly employed by the Company and C.D.S. Associates, Inc. is a
corporation controlled by Mr. Duane.  In the Second Amended Complaint,
the Company has alleged patent, trademark and copyright infringement, unfair
competition, unjust enrichment, violation of New York’s Consumer Protection Act,
breach of contract, tortuous interference with contractual and business
relations, civil conspiracy and trade secret misappropriation.  On
October 19, 2007, the Company filed a motion for preliminary injunction with the
Court in which the Company has asked the Court to enjoin the defendants from (i)
continuing to improperly use the Company’s trade secrets; (ii) continuing to
breach any contractual agreements with the Company; and (iii) marketing and
selling any dental protector products or other products in which Ray Duane or
Kelly Kaplan has had any involvement or provided any assistance to
DenTek.  A hearing date for the motion for preliminary injunction has
not yet been set by the Court.  Discovery requests have been served by
the parties and discovery is ongoing.





In
November 2007, the defendants in the action each filed a motion to dismiss which
is pending before the Court.  The Company has filed responses to the
motions to dismiss and is awaiting a decision by the Court regarding such
motions.  The Court has ordered the Company’s motion for a preliminary
injunction to be held in abeyance pending a determination of the motions to
dismiss.  A hearing before the Court was held on February 14, 2008
regarding pending procedural motions and discovery and another hearing is
scheduled to be held on June 23, 2008 regarding such motions and ongoing
discovery.  The parties are also scheduled to appear in Court on July
25, 2008 for a status conference.





In
addition to the matters described above, the Company is involved from time to
time in other routine legal matters and other claims incidental to its
business.  The Company reviews outstanding claims and proceedings




-27-


internally
and with external counsel as necessary to assess probability and amount of
potential loss.  These assessments are re-evaluated at each reporting
period and as new information becomes available to determine whether a reserve
should be established or if any existing reserve should be
adjusted.  The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded
reserve.  In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).  The Company
believes the resolution of routine matters and other incidental claims, taking
into account reserves and insurance, will not have a material adverse effect on
its business, financial condition or results from operations.





ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS


None.




-28-


Part
II








ITEM 5.
            MARKET FOR REGISTRANT’S COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES





Market
Information





Prestige
Brands Holdings, Inc.’s common stock is listed on The New York Stock Exchange
(“NYSE”) under the symbol “PBH.”  The high and low closing prices of
the Company’s common stock as reported by the NYSE for the Company’s two most
recent fiscal years on a quarterly basis were as follows:




High
            
            
            
            LowYear
      Ending March 31, 2009April 1, 2008 - June 6,
      2008
            
            $
            11.93
            
            
            $
            8.08Year
      Ended March 31, 2008Quarter
      Ended:June
      30, 2007
            
            $
            13.60
            
            
            $
            11.20September
      30, 2007
            
            
            13.67
            
            
            
            10.23December
      31, 2007
            
            
            11.43
            
            
            
            7.47March
      31, 2008
            
            
            8.58
            
            
            
            6.77Year
      Ended March 31, 2007Quarter
      Ended:June
      30, 2006
            
            $
            12.90
            
            
            $
            8.25September
      30, 2006
            
            
            11.55
            
            
            
            8.50December
      31, 2006
            
            
            13.87
            
            
            
            10.77March
      31, 2007
            
            
            13.53
            
            
            
            10.80





Unregistered
      Sales of Equity Securities and Use of
Proceeds





There
were no equity securities sold by the Company during the period covered by this
Annual Report on Form 10-K that were not registered under the Securities Act of
1933, as amended.





The
following table sets forth information with respect to purchases of shares of
the Company’s common stock made during the quarter ended March 31, 2008, by or
on behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:





Company
      Purchases of Equity SecuritiesPeriod
            
            (a)
              Total
      Number
              of
      Shares
              Purchased
            
            
            (b)
              Average
              Price
      Paid Per
              Share
            
            
            (c)
              Total
      Number
              of
      Shares
              Purchased
      as
              Part
      of Publicly Announced
              Plans
      or
              Programs
            
            
            (d)
              Maximum
              Number
      (or
              approximate
      dollar
              value)
      of Shares
              that
      May Yet Be Purchased
              Under
      the Plans
              or
      Programs1/1/08
      - 1/31/08
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            
            --2/1/08
      - 2/29/08
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --3/1/08
      - 3/31/08
            
            
            1,287
            
            
            
            1.70
            
            
            
            --
            
            
            
            --Total
            
            
            1,287
            
            
            $
            1.70
            
            
            
            --
            
            
            
            --





Note:


Activity
consists of one (1) transaction whereby the Company exercised its separation
repurchase option as set forth in a securities purchase agreement between the
Company and a former employee.





-29-


Holders





As of May
23, 2008, there were 53 holders of record of our common stock.  The
number of record holders does not include beneficial owners whose shares are
held in the names of banks, brokers, nominees or other fiduciaries.





Dividend
Policy





We have
not in the past paid, and do not expect for the foreseeable future, to pay
dividends on our common stock.  Instead, we anticipate that all of our
earnings in the foreseeable future will be used in our operations, to facilitate
strategic acquisitions, or to pay down our outstanding
indebtedness.  Any future determination to pay dividends will be at
the discretion of our board of directors and will depend upon, among other
factors, our results from operations, financial condition, capital requirements
and contractual restrictions, including restrictions under our senior credit
facility and the indenture governing our 9 1/4% senior subordinated notes, and
any other considerations our board of directors deems relevant.





-30-


PERFORMANCE
GRAPH





The
following graph compares our cumulative total stockholder return since February
9, 2005, the date of our initial public offering, the Peer Group Index and the
Russell 2000 Index (in which the Company is included). The graph assumes that
the value of the investment in the Company’s common stock and each index was
$100.00 on February 9, 2005.  The graph was also prepared based on the
assumption that all dividends paid, if any, were reinvested.  The Peer
Group Index was established by the Company in connection with its research and
subsequent implementation of an executive compensation program.  Based
on the Company’s use of the peer group for benchmarking purposes, the Company
believes the peer group should be included in the performance
graph.













February
      9,
            
            
            March
      312005
      (1)
            
            
            2006
            
            
            2007
            
            
            2008Prestige
      Brands Holdings
            
            $
            100.00
            
            
            $
            76.06
            
            
            $
            74.06
            
            
            $
            51.13The
      Peer Group Index (2)
            
            
            100.00
            
            
            
            117.41
            
            
            
            129.34
            
            
            
            126.11The
      Russell 2000 Index
            
            
            100.00
            
            
            
            122.61
            
            
            
            127.78
            
            
            
            107.83





(1)
            The
      Company’s initial public offering priced at $16.00 per share on February
      9, 2005.  Shares of the Company’s common stock closed at $17.75
      per share on February 10, 2005, the first day the shares of the Company’s
      common stock were traded on the
NYSE.





(2)
            The
      Peer Group Index is a self-constructed peer group consisting of companies
      in the consumer products industry with comparable revenues and market
      capitalization, from which the Company has been excluded.  Such
      Peer Group Index was constructed in connection with the Company’s
      benchmark analysis of executive compensation and is comprised of the
      following companies: (i) Alpharma Inc., (ii) Chattem Inc., (iii) Elizabeth
      Arden, Inc., (iv) Hain Celestial Group, Inc., (v) Helen of Troy Limited,
      (vi) Inter Parfums, Inc., (vii) Lifetime Brands, Inc., (viii) Maidenform
      Brands, Inc. and (ix) WD-40
Company.





The
performance graph representing the comparison of cumulative total return among
(i) Company, (ii) the Russell 2000 Index and (iii) the Peer Group Index shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Annual Report on Form 10-K into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
that we specifically incorporate this information by reference, and shall not
otherwise be deemed filed under such Acts.




-31-
 ITEM
      6.
              SELECTED FINANCIAL
      DATA


Prestige
Brands Holdings, Inc. and Predecessor





On
February 6, 2004, an indirect subsidiary of Prestige Brands Holdings, Inc.
acquired Medtech Holdings, Inc. and The Denorex Company, which at the time were
both under common control and management, in a transaction recognized using the
purchase method of accounting.  The summary financial data after such
dates, referred to as “successor” information, includes the financial statement
impact of recording fair value adjustments arising from such
acquisitions.  Summary historical financial data for the period from
April 1, 2003 to February 5, 2004 is referred to as the “predecessor”
information.





(In
      Thousands, except per share data)
            
            Year
      Ended March 312008
            
            
            2007
            
            
            2006Income
      Statement DataTotal
      revenues
            
            $
            326,603
            
            
            $
            318,634
            
            
            $
            296,668Cost
      of sales (1)
            
            
            158,096
            
            
            
            153,147
            
            
            
            139,430Gross
      profit
            
            
            168,507
            
            
            
            165,487
            
            
            
            157,238Advertising
      and promotion expenses
            
            
            34,665
            
            
            
            32,005
            
            
            
            32,082Depreciation
      and amortization
            
            
            11,014
            
            
            
            10,384
            
            
            
            10,777General
      and administrative
            
            
            31,414
            
            
            
            28,416
            
            
            
            21,158Impairment
      of intangibles and goodwill
            
            
            --
            
            
            
            --
            
            
            
            9,317Interest
      expense, net
            
            
            37,393
            
            
            
            39,506
            
            
            
            36,346Miscellaneous
      income
            
            
            (187
            )
            
            
            --
            
            
            
            --Income
      before income taxes
            
            
            54,208
            
            
            
            55,176
            
            
            
            47,558Provision
      for income taxes
            
            
            20,289
            
            
            
            19,098
            
            
            
            21,281Net
      income
            
            $
            33,919
            
            
            $
            36,078
            
            
            $
            26,277Net
      income per common share:Basic
            
            $
            0.68
            
            
            $
            0.73
            
            
            $
            0.54Diluted
            
            $
            0.68
            
            
            $
            0.72
            
            
            $
            0.53Weighted
      average shares outstanding:Basic
            
            
            49,751
            
            
            
            49,460
            
            
            
            48,908Diluted
            
            
            50,039
            
            
            
            50,020
            
            
            
            50,008Year
      Ended March 31Other
      Financial Data
            
            2008
            
            
            2007
            
            
            2006Capital
      expenditures
            
            $
            521
            
            
            $
            540
            
            
            $
            519Cash
      provided by (used in):Operating
      activities
            
            
            44,989
            
            
            
            71,899
            
            
            
            53,861Investing
      activities
            
            
            (537
            )
            
            
            (31,051
            )
            
            
            (54,163
            )Financing
      activities
            
            
            (52,132
            )
            
            
            (35,290
            )
            
            
            3,168March
      31Balance
      Sheet Data
            
            2008
            
            
            2007
            
            
            2006Cash
      and cash equivalents
            
            $
            6,078
            
            
            $
            13,758
            
            
            $
            8,200Total
      assets
            
            
            1,049,156
            
            
            
            1,063,416
            
            
            
            1,038,645Total
      long-term debt, including current maturities
            
            
            411,225
            
            
            
            463,350
            
            
            
            498,630Stockholders’
      equity
            
            
            479,073
            
            
            
            445,334
            
            
            
            409,407








-32-


(In
      Thousands, except per share data)
            
            Year
      Ended
              March
      31,
            
            
            February
      6, 2004 to March 31,
            
            
            April
      1, 2003 to February 5,2005
            
            
            2004
            
            
            2004Income
      Statement Data
            
            (Successor)
            
            
            (Successor)
            
            
            (Predecessor)Total
      revenues
            
            $
            289,069
            
            
            $
            16,876
            
            
            $
            68,402Cost
      of sales (1)
            
            
            139,009
            
            
            
            9,351
            
            
            
            26,855Gross
      profit
            
            
            150,060
            
            
            
            7,525
            
            
            
            41,547Advertising
      and promotion expenses
            
            
            29,697
            
            
            
            1,267
            
            
            
            10,061Depreciation
      and amortization
            
            
            9,800
            
            
            
            931
            
            
            
            4,498General
      and administrative
            
            
            20,198
            
            
            
            1,649
            
            
            
            12,068Interest
      expense, net
            
            
            44,726
            
            
            
            1,725
            
            
            
            8,157Other
      expense(2)
            
            
            26,863
            
            
            
            --
            
            
            
            1,404Income
      before income taxes
            
            
            18,776
            
            
            
            1,953
            
            
            
            5,359Provision
      for income taxes
            
            
            8,556
            
            
            
            724
            
            
            
            2,214Net
      income
            
            
            10,220
            
            
            
            1,229
            
            
            $
            3,145Cumulative
      preferred dividends on Senior Preferred and Class B Preferred
      units
            
            
            (25,395
            )
            
            
            (1,390
            )Net
      loss available to members and common stockholders
            
            $
            (15,175
            )
            
            $
            (161
            )Basic
      and diluted net lossper
      share
            
            $
            (0.55
            )
            
            $
            (0.01
            )Basic
      and diluted weighted average shares outstanding
            
            
            27,546
            
            
            
            24,472Year
      Ended
              March
      31,
            
            
            February
      6, 2004 to March 31,
            
            
            April
      1, 2003 to February 5,Other Financial
      Data:
            
            2005
            
            
            2004
            
            
            2004Capital
      expenditures
            
            $
            365
            
            
            $
            42
            
            
            $
            66Cash
      provided by (used in):Operating
      activities
            
            
            51,042
            
            
            
            (1,706
            )
            
            
            7,843Investing
      activities
            
            
            (425,844
            )
            
            
            (166,874
            )
            
            
            (576
            )Financing
      activities
            
            
            376,743
            
            
            
            171,973
            
            
            
            (8,629
            )Balance
      Sheet Data:
            
            March
      31, 2005
            
            
            March
      31, 2004
            
            
            February
      5, 2004Cash
      and cash equivalents
            
            $
            5,334
            
            
            $
            3,393
            
            
            $
            2,868Total
      assets
            
            
            996,600
            
            
            
            325,358
            
            
            
            145,130Total
      long-term debt, includingcurrent
      maturities
            
            
            495,360
            
            
            
            148,694
            
            
            
            71,469Members’/Stockholders’
      equity
            
            
            382,047
            
            
            
            125,948
            
            
            
            50,122





(1)
            For
      the period from February 6, 2004 to March 31, 2004 and for 2005, 2006 and
      2007, cost of sales includes $1.8 million, $5.3 million, $248,000 and
      $276,000, respectively, of charges related to the step-up of
      inventory.


(2)
            For
      2005, other expense includes a loss on debt extinguishment of $26.9
      million.






-33-


ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION








The
following discussion of our financial condition and results of operations should
be read together with the “Selected Financial Data” and the consolidated
financial statements and the related notes included elsewhere in this Annual
Report on Form 10-K.  This discussion and analysis may contain
forward-looking statements that involve certain risks, assumptions and
uncertainties.  Future results could differ materially from the
discussion that follows for many reasons, including the factors described in
Item 1A., “Risk Factors” in this Annual Report on Form 10-K, as well as those
described in future reports filed with the SEC.





General


We are
engaged in the marketing, sales and distribution of brand name over-the-counter
healthcare, household cleaning and personal care products to mass merchandisers,
drug stores, supermarkets and club stores primarily in the United States and
Canada.  We operate in niche segments of these categories where we can
use the strength of our brands, our established retail distribution network, a
low-cost operating model and our experienced management team as a competitive
advantage to grow our presence in these categories and, as a result, grow our
sales and profits.





We have
grown our brand portfolio by acquiring strong and well-recognized brands from
larger consumer products and pharmaceutical companies, as well as other brands
from smaller private companies.  While the brands we have purchased
from larger consumer products and pharmaceutical companies have long histories
of support and brand development, we believe that at the time we acquired them
they were considered “non-core” by their previous owners and did not benefit
from the focus of senior level management or strong marketing
support.  We believe that the brands we have purchased from smaller
private companies have been constrained by the limited resources of their prior
owners.  After acquiring a brand, we seek to increase its sales,
market share and distribution in both existing and new channels.  We
pursue this growth through increased spending on advertising and promotion, new
marketing strategies, improved packaging and formulations and innovative new
products.





Critical
      Accounting Policies and Estimates





The
Company’s significant accounting policies are described in the notes to the
audited financial statements included elsewhere in this Annual Report on Form
10-K.  While all significant accounting policies are important to our
consolidated financial statements, certain of these policies may be viewed as
being critical.  Such policies are those that are both most important
to the portrayal of our financial condition and results from operations and
require our most difficult, subjective and complex estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses or
the related disclosure of contingent assets and liabilities.  These
estimates are based upon our historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances.  Actual results may differ materially from these
estimates under different conditions.  The most critical accounting
policies are as follows:





Revenue
Recognition


We comply
with the provisions of SEC Staff Accounting Bulletin No. 104 “Revenue
Recognition,” which states that revenue should be recognized when the following
revenue recognition criteria are met: (i) persuasive evidence of an arrangement
exists; (ii) the product has been shipped and the customer takes ownership and
assumes the risk of loss; (iii) the selling price is fixed or determinable; and
(iv) collection of the resulting receivable is reasonably assured.  We
have determined that the transfer of risk of loss generally occurs when product
is received by the customer, and, accordingly recognize revenue at that
time.  Provision is made for estimated discounts related to customer
payment terms and estimated product returns at the time of sale based on our
historical experience.





As is
customary in the consumer products industry, we participate in the promotional
programs of our customers to enhance the sale of our products.  The
cost of these promotional programs is recorded in accordance with Emerging
Issues Task Force 01-09, “Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products)” as either advertising and promotional expenses or as a
reduction of sales.  Such costs vary from period-to-period based on
the actual number of units sold during a finite period of time.  We




-34-


estimate
the cost of such promotional programs at their inception based on historical
experience and current market conditions and reduce sales by such
estimates.  These promotional programs consist of direct to consumer
incentives such as coupons and temporary price reductions, as well as incentives
to our customers, such as slotting fees and cooperative
advertising.  We do not provide incentives to customers for the
acquisition of product in excess of normal inventory quantities since such
incentives increase the potential for future returns, as well as reduce sales in
the subsequent fiscal periods.





Estimates
of costs of promotional programs are based on (i) historical sales experience,
(ii) the current offering, (iii) forecasted data, (iv) current market
conditions, and (v) communication with customer purchasing/marketing
personnel.  At the completion of the promotional program, the
estimated amounts are adjusted to actual results.  While our
promotional expense for the year ended March 31, 2008 was $18.8 million, we
participated in 4,800 promotional campaigns, resulting in an average cost of
$3,000 per campaign.  Of such amount, only 663 payments were in excess
of $5,000.  We believe that the estimation methodologies employed,
combined with the nature of the promotional campaigns, makes the likelihood
remote that our obligation would be misstated by a material
amount.  However, for illustrative purposes, had we underestimated the
promotional program rate by 10% for the year ended March 31, 2008, our sales and
operating income would have been adversely affected by approximately $1.9
million.  Net income would have been adversely affected by
approximately $1.2 million.





We also
periodically run coupon programs in Sunday newspaper inserts or as on-package
instant redeemable coupons.  We utilize a national clearing house to
process coupons redeemed by customers.  At the time a coupon is
distributed, a provision is made based upon historical redemption rates for that
particular product, information provided as a result of the clearing house’s
experience with coupons of similar dollar value, the length of time the coupon
is valid, and the seasonality of the coupon drop, among other
factors.  During 2008, we had 29 coupon events.  The amount
recorded against revenues and accrued for these events during the year was $2.1
million, of which $1.9 million was redeemed during the year.





Allowances
for Product Returns


Due to
the nature of the consumer products industry, we are required to estimate future
product returns.  Accordingly, we record an estimate of product
returns concurrent with the recording of sales.  Such estimates are
made after analyzing (i) historical return rates, (ii) current economic trends,
(iii) changes in customer demand, (iv) product acceptance, (v) seasonality of
our product offerings, and (vi) the impact of changes in product formulation,
packaging and advertising.





We
construct our returns analysis by looking at the previous year’s return history
for each brand.  Subsequently, each month, we estimate our current
return rate based upon an average of the previous six months’ return rate and
review that calculated rate for reasonableness giving consideration to the other
factors described above.  Our historical return rate has been
relatively stable; for example, for the years ended March 31, 2008, 2007 and
2006, returns represented 4.6%, 3.7% and 3.5%, respectively, of gross
sales.  While the returns rate increased 0.9% from 2007 to 2008, such
amount exclusive of the voluntary withdrawal from the marketplace of Little Remedies medicated
pediatric cough and cold products in October 2007, would have been
4.1%.  At March 31, 2008 and 2007, the allowance for sales returns was
$1.4 million and $1.8 million, respectively.





While we
utilize the methodology described above to estimate product returns, actual
results may differ materially from our estimates, causing our future financial
results to be adversely affected.  Among the factors that could cause
a material change in the estimated return rate would be significant unexpected
returns with respect to a product or products that comprise a significant
portion of our revenues in a manner similar to the Little Remedies voluntary
withdrawal discussed above.  Based upon the methodology described
above and our actual returns’ experience, management believes the likelihood of
such an event remains remote.  As noted, over the last three years,
our actual product return rate has stayed within a range of 4.6% to 3.5% of
gross sales.  An increase of 0.1% in our estimated return rate as a
percentage of gross sales would have adversely affected our reported sales and
operating income for the year ended March 31, 2008 by approximately
$380,000.  Net income would have been adversely affected by
approximately $236,000.





Allowances
for Obsolete and Damaged Inventory


We value
our inventory at the lower of cost or market value.  Accordingly, we
reduce our inventories for the diminution of value resulting from product
obsolescence, damage or other issues affecting marketability equal
to




-35-


the
difference between the cost of the inventory and its estimated market
value.  Factors utilized in the determination of estimated market
value include (i) current sales data and historical return rates, (ii) estimates
of future demand, (iii) competitive pricing pressures, (iv) new product
introductions, (v) product expiration dates, and (vi) component and packaging
obsolescence.





Many of
our products are subject to expiration dating.  As a general rule our
customers will not accept goods with expiration dating of less than 12 months
from the date of delivery.  To monitor this risk, management utilizes
a detailed compilation of inventory with expiration dating between zero and 15
months and reserves for 100% of the cost of any item with expiration dating of
12 months or less.  At March 31, 2008 and 2007, the allowance for
obsolete and slow moving inventory represented 4.6% and 5.8%, respectively, of
total inventory.  The year-over-year decrease resulted primarily from
the disposition of cough and cold products that had been included in the
obsolescence reserve at March 31, 2007 due to short dating, partially offset by
the addition of the Little
Remedies products that were subject to the voluntary withdrawal from
the marketplace of Little
Remedies medicated pediatric cough and cold products in October
2007.  Inventory obsolescence costs charged to operations for 2008,
2007, and 2006 were $1.4 million, $3.1 million and $526,000, respectively, or
0.4% 1.0% and 0.2%, respectively, of net sales.  A 1.0% increase in
our allowance for obsolescence at March 31, 2008 would have adversely affected
our reported operating income and net income for the year ended March 31, 2008
by approximately $311,000 and $193,000, respectively.





Allowance
for Doubtful Accounts


In the
ordinary course of business, we grant non-interest bearing trade credit to our
customers on normal credit terms.  We maintain an allowance for
doubtful accounts receivable which is based upon our historical collection
experience and expected collectibility of the accounts receivable.  In
an effort to reduce our credit risk, we (i) establish credit limits for all of
our customer relationships, (ii) perform ongoing credit evaluations of our
customers’ financial condition, (iii) monitor the payment history and aging of
our customers’ receivables, and (iv) monitor open orders against an individual
customer’s outstanding receivable balance.





We
establish specific reserves for those accounts which file for bankruptcy, have
no payment activity for 180 days or have reported major negative changes to
their financial condition.  The allowance for bad debts amounted to
0.1% of accounts receivable at both March 31, 2008 and 2007.  Bad debt
expense (recoveries) for 2008, 2007 and 2006 were $124,000, $(100,000) and
$(53,000), respectively, each representing 0.0% of net sales in each of the
years.





While
management believes that it is diligent in its evaluation of the adequacy of the
allowance for doubtful accounts, an unexpected event, such as the bankruptcy
filing of a major customer, could have an adverse effect on our future financial
results.  A 0.1% increase in our bad debt expense as a percentage of
sales in 2008 would have resulted in a decrease in reported operating income of
approximately $325,000, and a decrease in our reported net income of
approximately $202,000.





Valuation
of Intangible Assets and Goodwill


Goodwill
and intangible assets amounted to $955.6 million and $968.1 million at March 31,
2008 and 2007, respectively.  At March 31, 2008, goodwill and
intangible assets were apportioned among our three operating segments as
follows:





Over-the-
              Counter
              Healthcare
            
            
            Household
              Cleaning
            
            
            Personal
              Care
            
            
            ConsolidatedGoodwill
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            87,230
            
            
            
            9
            
            
            
            14,481
            
            
            
            101,720461,300
            
            
            
            170,902
            
            
            
            14,481
            
            
            
            646,683$
            694,915
            
            
            $
            243,451
            
            
            $
            17,232
            
            
            $
            955,598








-36-


Our Clear Eyes, New-Skin,
Chloraseptic,Compound
W and Wartnerbrands comprise the majority of the value of the intangible assets within
the Over-The-Counter Healthcare segment.  The Comet, Spic and Spanand
Chore Boybrands
comprise substantially all of the intangible asset value within the Household
Cleaning segment.  Denorex, Cutexand Prellcomprised substantially
all of the intangible asset value within the Personal Care segment.





Goodwill
and intangible assets comprise substantially all of our
assets.  Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed in a purchase business
combination.  Intangible assets generally represent our trademarks,
brand names and patents.  When we acquire a brand, we are required to
make judgments regarding the value assigned to the associated intangible assets,
as well as their respective useful lives.  Management considers many
factors, both prior to and after, the acquisition of an intangible asset in
determining the value, as well as the useful life, assigned to each intangible
asset that the Company acquires or continues to own and promote.  The
most significant factors are:





·
            Brand
      History


A brand
that has been in existence for a long period of time (e.g.,25, 50 or 100 years)
generally warrants a higher valuation and longer life (sometimes indefinite)
than a brand that has been in existence for a very short period of
time.  A brand that has been in existence for an extended period of
time generally has been the subject of considerable investment by its previous
owner(s) to support product innovation and advertising and
promotion.





·
            Market
      Position


Consumer
products that rank number one or two in their respective market generally have
greater name recognition and are known as quality product offerings, which
warrant a higher valuation and longer life than products that lag in the
marketplace.





·
            Recent
      and Projected Sales Growth


Recent
sales results present a snapshot as to how the brand has performed in the most
recent time periods and represent another factor in the determination of brand
value.  In addition, projected sales growth provides information about
the strength and potential longevity of the brand.  A brand that has
both strong current and projected sales generally warrants a higher valuation
and a longer life than a brand that has weak or declining
sales.  Similarly, consideration is given to the potential investment,
in the form of advertising and promotion, which is required to reinvigorate a
brand that has fallen from favor.





·
            History
      of and Potential for Product
Extensions


Consideration
also is given to the product innovation that has occurred during the brand’s
history and the potential for continued product innovation that will determine
the brand’s future.  Brands that can be continually enhanced by new
product offerings generally warrant a higher valuation and longer life than a
brand that has always “followed the leader”.





After
consideration of the factors described above, as well as current economic
conditions and changing consumer behavior, management prepares a determination
of the intangible’s value and useful life based on its analysis of the
requirements of Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("Statement") No. 141, "Business
Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets"
("Statement No. 142").  Under Statement No. 142, goodwill and
indefinite-lived intangible assets are no longer amortized, but must be tested
for impairment at least annually.  Intangible assets with finite lives
are amortized over their respective estimated useful lives and must also be
tested for impairment.





On an
annual basis, or more frequently if conditions indicate that the carrying value
of the asset may not be recovered, management performs a review of both the
values and useful lives assigned to goodwill and intangible assets and tests for
impairment.







-37-


Finite-Lived
Intangible Assets
 As
mentioned above, management performs an annual review, or more frequently if
necessary, to ascertain the impact of events and circumstances on the estimated
useful lives and carrying values of our trademarks and trade names.  In
connection with this analysis, management:





·
            Reviews
      period-to-period sales and profitability by
  brand,


·
            Analyzes
      industry trends and projects brand growth
rates,


·
            Prepares
      annual sales forecasts,


·
            Evaluates
      advertising effectiveness,


·
            Analyzes
      gross margins,


·
            Reviews
      contractual benefits or
limitations,


·
            Monitors
      competitors’ advertising spend and product
  innovation,


·
            Prepares
      projections to measure brand viability over the estimated useful life of
      the intangible asset, and


·
            Considers
      the regulatory environment, as well as industry
  litigation.





Should
analysis of any of the aforementioned factors warrant a change in the estimated
useful life of the intangible asset, management will reduce the estimated useful
life and amortize the carrying value prospectively over the shorter remaining
useful life.  Management’s projections are utilized to assimilate all
of the facts, circumstances and expectations related to the trademark or trade
name and estimate the cash flows over its useful life.  In the event
that the long-term projections indicate that the carrying value is in excess of
the undiscounted cash flows expected to result from the use of the intangible
assets, management is required to record an impairment charge.  Once
that analysis is completed, a discount rate is applied to the cash flows to
estimate fair value.  The impairment charge is measured as the excess
of the carrying amount of the intangible asset over fair value as calculated
using the discounted cash flow analysis.  Future events, such as
competition, technological advances and reductions in advertising support for
our trademarks and trade names could cause subsequent evaluations to utilize
different assumptions.





Indefinite-Lived
Intangible Assets


In a
manner similar to finite-lived intangible assets, on an annual basis, or more
frequently if necessary, management analyzes current events and circumstances to
determine whether the indefinite life classification for a trademark or trade
name continues to be valid.  Should circumstance warrant a finite
life, the carrying value of the intangible asset would then be amortized
prospectively over the estimated remaining useful life.





In
connection with this analysis, management also tests the indefinite-lived
intangible assets for impairment by comparing the carrying value of the
intangible asset to its estimated fair value.  Since quoted market
prices are seldom available for trademarks and trade names such as ours, we
utilize present value techniques to estimate fair value.  Accordingly,
management’s projections are utilized to assimilate all of the facts,
circumstances and expectations related to the trademark or trade name and
estimate the cash flows over its useful life.  In performing this
analysis, management considers the same types of information as listed above in
regards to finite-lived intangible assets.  Once that analysis is
completed, a discount rate is applied to the cash flows to estimate fair
value.  Future events, such as competition, technological advances and
reductions in advertising support for our trademarks and trade names could cause
subsequent evaluations to utilize different assumptions.





Goodwill


As part
of its annual test for impairment of goodwill, management estimates the
discounted cash flows of each reporting unit, which is at the brand level, and
one level below the operating segment level, to estimate their respective fair
values.  In performing this analysis, management considers the same
types of information as listed above in regards to finite-lived intangible
assets.  In the event that the carrying amount of the reporting unit
exceeds the fair value, management would then be required to allocate the
estimated fair value of the assets and liabilities of the reporting unit as if
the unit was acquired in a business combination, thereby revaluing the carrying
amount of goodwill.  In a manner similar to indefinite-lived assets,
future events, such as competition, technological advances and reductions in
advertising support for our trademarks and trade names could cause subsequent
evaluations to utilize different assumptions.





In
estimating the value of trademarks and trade names, as well as goodwill, at
March 31, 2008, management




-38-


applied a
discount rate of 9.1%, the Company’s then current weighted-average cost of
funds, to the estimated cash flows; however that rate, as well as future cash
flows may be influenced by such factors, including (i) changes in interest
rates, (ii) rates of inflation, or (iii) sales or contribution margin
reductions.  In the event that the carrying value
exceeded the estimated fair value of either intangible assets or goodwill, we
would be required to recognize an impairment charge.  Additionally,
continued decline of the fair value ascribed to an intangible asset or a
reporting unit caused by external factors may require future impairment
charges.





During
the three month period ended March 31, 2006, we recorded non-cash charges
related to the impairment of intangible assets and goodwill of the Personal Care
segment of $7.4 million and $1.9 million, respectively, because the carrying
amounts of these “branded” assets exceeded their fair market values primarily as
a result of declining sales caused by product competition.  Should the
related fair values of goodwill and intangible assets continue to be adversely
affected as a result of declining sales or margins caused by competition,
technological advances or reductions in advertising and promotional expenses,
the Company may be required to record additional impairment
charges.  However, we were not required to record any asset impairment
charges during 2007 or 2008.





Stock-Based
Compensation


During 2006, we adopted
FASB Statement No. 123(R), “Share-Based Payment” (“Statement No. 123(R)”) with
the initial grants of restricted stock and options to purchase common stock to
employees and directors in accordance with the provisions of the
Plan.Statement No. 123(R) requires us to measure the cost of
services to be rendered based on the grant-date fair value of the equity
award.  Compensation expense is to be recognized over the period which
an employee is required to provide service in exchange for the award, generally
referred to as the requisite service period.  Information utilized in
the determination of fair value includes the following:





·
            Type
      of instrument (i.e.: restricted shares vs. an option, warrant or
      performance shares),


·
            Strike
      price of the instrument,


·
            Market
      price of the Company’s common stock on the date of
  grant,


·
            Discount
      rates,


·
            Duration
      of the instrument, and


·
            Volatility
      of the Company’s common stock in the public
  market.





Additionally,
management must estimate the expected attrition rate of the recipients to enable
it to estimate the amount of non-cash compensation expense to be recorded in our
financial statements.  While management uses diligent analysis to
estimate the respective variables, a change in assumptions or market conditions,
as well as changes in the anticipated attrition rates, could have a significant
impact on the future amounts recorded as non-cash compensation
expense.  The Company recorded net non-cash compensation expense of
$1.1 million, $655,000 and $383,000 during 2008, 2007 and 2006,
respectively.  However, in 2008, management was required to reverse
previously recorded stock-based compensation costs of $538,000, $394,000 and
$166,000 related to the October 2005, July 2006 and May 2007 grants,
respectively, as it determined that the Company would not meet the performance
goals associated with such grants of restricted stock.  Assuming no
changes in assumptions and no new awards authorized by the Compensation
Committee of the Board of Directors, we will record non-cash compensation
expense of approximately $1.5 million during 2009.





Loss
Contingencies


Loss
contingencies are recorded as liabilities when it is probable that a liability
has been incurred and the amount of such loss is reasonably
estimable.  Contingent losses are often resolved over longer periods
of time and involve many factors including:





·
            Rules
      and regulations promulgated by regulatory
  agencies,


·
            Sufficiency
      of the evidence in support of our
position,


·
            Anticipated
      costs to support our position, and


·
            Likelihood
      of a positive outcome.





Recent
Accounting Pronouncements


In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“Statement No. 161”) that requires a company with


-39-


derivative
instruments to disclose information to enable users of the financial statements
to understand (i) how and why the company uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial
performance, and cash flows.  Accordingly, Statement No. 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. Statement No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008.  The implementation of Statement No. 161 is
not expected to have a material effect on the Company’s consolidated financial
statements.





In
December 2007, the FASB ratified Emerging Issues Task Force 07-01, “Accounting
for Collaborative Arrangements” (“EITF 07-01”).  EITF 07-01 provides
guidance for determining if a collaborative arrangement exists and establishes
procedures for reporting revenues and costs generated from transactions with
third parties, as well as between the parties within the collaborative
arrangement, and provides guidance for financial statement disclosures of
collaborative arrangements.  EITF 07-01 is effective for fiscal years
beginning after December 15, 2008 and is required to be applied retrospectively
to all prior periods where collaborative arrangements existed as of the
effective date.  The Company currently is assessing the impact of EITF
07-01 on its consolidated financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“Statement No. 141(R)”) to improve consistency and comparability
in the accounting and financial reporting of business
combinations.  Accordingly, Statement 141(R) requires the acquiring
entity in a business combination to (i) recognize all assets acquired and
liabilities assumed in the transaction, (ii) establishes acquisition-date fair
value as the amount to be ascribed to the acquired assets and liabilities and
(iii) requires certain disclosures to enable users of the financial statements
to evaluate the nature, as well as the financial aspects of the business
combination.  Statement 141(R) is effective for business combinations
consummated by the Company on or after April 1, 2009.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities -Including an amendment
of FASB Statement No. 115” (“Statement No.
159”).  StatementNo. 159 permits
companies to choose to measure certain financial instruments and certain other
items at fair value.  Unrealized gains and losses on items for which
the fair value option has been elected will be recognized in earnings at each
subsequent reporting date.  Statement No. 159 is effective for the
Company’s interim financial statements issued after April 1,
2008.  The implementation of Statement No. 159 is not expected to have
a material effect on the Company’s consolidated financial
statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“Statement No. 157”) to address inconsistencies in the definition and
determination of fair value pursuant to generally accepted accounting principles
(“GAAP”).  Statement No. 157 provides a single definition of fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements in an effort to increase comparability
related to the recognition of market-based assets and liabilities and their
impact on earnings.  Statement No. 157 is effective for the Company’s
interim financial statements issued after April 1, 2008.  However, on
February 12, 2008, the FASB deferred the effective date of Statement No. 157 for
one year for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  The implementation of Statement No. 157 is not
expected to have a material effect on financial assets and liabilities included
in the Company’s consolidated financial statements as fair value is based on
readily available market prices.  The Company is currently evaluating
the impact that the application of Statement No. 157 will have on its
consolidated financial statements as it relates to the non-financial assets and
liabilities.





Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.








-40-





Fiscal
2008 compared to Fiscal 2007





Revenues


2008
              Revenues
            
            
            %
            
            
            2007
              Revenues
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            183,692
            
            
            
            56.2
            
            
            $
            174,704
            
            
            
            54.8
            
            
            $
            8,988
            
            
            
            5.1Household
      Cleaning
            
            
            121,127
            
            
            
            37.1
            
            
            
            119,036
            
            
            
            37.4
            
            
            
            2,091
            
            
            
            1.8Personal
      Care
            
            
            21,784
            
            
            
            6.7
            
            
            
            24,894
            
            
            
            7.8
            
            
            
            (3,110
            )
            
            
            (12.5
            )$
            326,603
            
            
            
            100.0
            
            
            $
            318,634
            
            
            
            100.0
            
            
            $
            7,969
            
            
            
            2.5





The 2.5%
increase in revenues for 2008 versus 2007 was primarily a result of the
acquisition of the Wartner brand, acquired in
September of 2006.  Excluding the impact of this acquisition, revenues
increased 0.8%.  Revenue increases in the Over-the-Counter Healthcare
and Household Cleaning segments were partially offset by a decrease in the
Personal Care segment.  Revenues from customers outside of North
America, which represent 4.0% of total revenues, decreased 11.4% in 2008 versus
the comparable period in 2007.





During
2008, the Company increased its allowance for returns by $1.7 million in
connection with the voluntary withdrawal from the marketplace in October 2007 of
two medicated pediatric cough and cold products marketed under the Little Remedies
brand.  This action was part of an industry-wide voluntary withdrawal
of pediatric cough and cold products pending the final results of an FDA safety
and efficacy review.  Excluding the impact of the withdrawal, total
revenues for the Company would have been $328.3 million, or 3.0% greater than
2007 and up 1.3% excluding the Wartner acquisition.





Over-the-Counter
Healthcare Segment


Revenues
of the Over-the-Counter Healthcare segment increased by $9.0 million, or 5.1%,
for 2008 versus 2007.  The revenue increase was primarily due to the
acquisition of the Wartner brand in September
2006 and the launch of Murine Earigate, a new product that
helps prevent earwax build-up with its patented reverse spray
technology.  Excluding the impact of the Wartner acquisition, revenues
increased by 2.1% for the year.  Revenue increases from Murine Earigate, Clear Eyes, New Skin, Dermoplast and Compound W were partially
offset by decreases in Chloraseptic, The Doctor’s NightGuard Dental Protector
and Little
Remedies.  Clear Eyes and New Skin’s revenue increases
were the result of increased consumer consumption and distribution
gains.  Dermoplast’s revenue increase
was due to improved consumer consumption.  Compound W revenues were up
primarily due to lower promotional allowances as gross shipments were flat due
to softness in the cryogenic sub-segment of the wart category.  Chloraseptic’s revenue
decreased due to weaker consumer consumption as a result of the decline in the
number of sore throat incidences nationwide versus 2007.  The Doctor’s NightGuard Dental Protector
revenue decreased as a result of increased competition in the bruxism
category.  Little
Remedies’ revenue declined due to a $1.7 million increase in the
allowance for returns, as well as lost sales in connection with the voluntary
withdrawal from the marketplace of Little Remedies medicated
pediatric cough and cold products in October 2007.





Household
Cleaning Segment


Revenues
of the Household Cleaning segment increased $2.1 million, or 1.8% during the
year versus 2007.  Increased revenues on the Cometbrand offset declines in
theSpic
and SpanandChore
Boybrands.  Revenue forCometMildew SprayGel, which
launched in the last quarter of 2007, was partially offset by weaker consumer
consumption ofComet bathroom
sprays.  The decline in Spic and Span’s revenue was
the result of weaker consumption and in line with overall declines in the
all-purpose cleaning category.  Chore Boy’s revenue decreases
were in line with consumption trends partially offset by strong shipments to
small grocery wholesale accounts.





Personal
Care Segment


Revenues
of the Personal Care segment declined $3.1 million or 12.5% for 2008 versus
2007.  All major brands in this segment, except for Prell, experienced revenue
declines during the year.  The decrease in revenues of Cutex and Denorexwas a result of declining
consumption and lost market share.Prell’s revenue increased for
the




-41-


period
primarily due to improved consumption.  The Personal Care segment
continues to perform in accordance with management’s expectations.








Gross
Profit


2008
              Gross
      Profit
            
            
            %
            
            
            2007
              Gross
      Profit
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            114,348
            
            
            
            62.2
            
            
            $
            109,103
            
            
            
            62.5
            
            
            $
            5,245
            
            
            
            4.8Household
      Cleaning
            
            
            45,668
            
            
            
            37.7
            
            
            
            46,034
            
            
            
            38.7
            
            
            
            (366
            )
            
            
            (0.8
            )Personal
      Care
            
            
            8,491
            
            
            
            39.0
            
            
            
            10,350
            
            
            
            41.6
            
            
            
            (1,859
            )
            
            
            (18.0
            )$
            168,507
            
            
            
            51.6
            
            
            $
            165,487
            
            
            
            51.9
            
            
            $
            3,020
            
            
            
            1.8





Gross
profit for 2008 increased by $3.0 million, or 1.8%, versus 2007.  As a
percent of total revenue, gross profit decreased from 51.9% in 2007 to 51.6%
during 2008.  The decrease in gross profit as a percent of revenues
was primarily a result of unfavorable sales mix toward lower margin products, an
increase in promotional allowances and higher raw material costs.





Over-the-Counter
Healthcare Segment


Gross
profit increased $5.2 million, or 4.8%, versus 2007.  As a percent of
OTC revenue, gross profit decreased from 62.5% in 2007 to 62.2% during
2008.  The decrease in gross profit percentage was primarily the
result of an increase in promotional price allowances behind The Doctor’s and Little Remedies brands to
stimulate consumer takeaway, as well as an increase in sales of the Murine Earigate which has a lower
margin than the segment’s average gross profit percentage.





Household
Cleaning Segment


Gross
profit for the Household Cleaning segment decreased by $366,000, or 0.8%, in
2008 versus 2007.  As a percent of household cleaning revenue, gross
profit decreased from 38.7% in 2007 to 37.7% during 2008.  The
decrease in gross profit percentage was primarily the result of higher product
costs, primarily for raw material purchases, partially offset by lower
distribution costs.





Personal
Care Segment


Gross
profit decreased $1.9 million, or 18.0%, versus 2007.  As a percent of
personal care revenue, gross profit decreased from 41.6% for 2007 to 39.0%
during 2008.  The decrease in gross profit percentage is a result of
increased product and distribution costs.








Contribution
Margin


2008
              Contribution
      Margin
            
            
            %
            
            
            2007
              Contribution
      Margin
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            88,160
            
            
            
            48.0
            
            
            $
            84,902
            
            
            
            48.6
            
            
            $
            3,258
            
            
            
            3.8Household
      Cleaning
            
            
            38,185
            
            
            
            31.5
            
            
            
            39,355
            
            
            
            33.1
            
            
            
            (1,170
            )
            
            
            (3.0
            )Personal
      Care
            
            
            7,497
            
            
            
            34.4
            
            
            
            9,225
            
            
            
            37.1
            
            
            
            (1,728
            )
            
            
            (18.7
            )$
            133,842
            
            
            
            41.0
            
            
            $
            133,482
            
            
            
            41.9
            
            
            $
            360
            
            
            
            0.3





Contribution
margin, defined as gross profit less advertising and promotional expenses,
increased by $360,000, or 0.3% for 2008 versus 2007.  The
contribution margin increase was a result of the increase in sales and gross
profit as previously discussed, offset by a $2.6 million, or 8.3% increase in
advertising and promotional spending.  The increase in advertising and
promotional spending was primarily attributable to support behind the launches
of Murine Earigate and Comet Mildew
SprayGel.





-42-


Over-the-Counter
Healthcare Segment


Contribution
margin in the Over-the-Counter Healthcare segment increased by $3.3 million, or
3.8%, for 2008 versus 2007.  The contribution margin increase was a
result of the increase in sales and gross profit as previously discussed,
partially offset by a $2.0 million, or an 8.2%, increase in advertising and
promotional spending.  The increase in advertising and promotional
spending was primarily a result of television media support behind the launch of
Murine Earigate, an increase in
spending against the Compound
W and Little
Remedies brands, partially offset by a reduction in Chloraseptic and Clear Eyes
spending.





Household
Cleaning Segment


Contribution
margin for the Household Cleaning segment decreased by $1.2 million, or 3.0%,
for 2008 versus 2007.  The contribution margin decrease was a result
of the sales increase and gross profit decrease previously discussed and an
$800,000, or 12.0%, increase for advertising in support of the Comet Mildew SprayGel
launch.





Personal
Care Segment


Contribution
margin for the Personal Care segment decreased $1.7 million, or 18.7%, for 2008
versus 2007.  The contribution margin decrease was primarily the
result of the sales and gross profit decreases previously discussed, offset by a
$100,000 reduction in advertising and promotional spending.





General
and Administrative


General
and administrative expenses were $31.4 million for 2008 versus $28.4 million for
2007.  Higher professional fees associated with the OraSure
litigation, as well as protective actions initiated by the Company in connection
with The Doctor’s NightGuard Dental Protector
intellectual property were partially offset by lower professional fees related
primarily to efficiencies gained in the area of Sarbanes-Oxley
compliance.





Depreciation
and Amortization


Depreciation
and amortization expense was $11.0 million for 2008 versus $10.4 million for
2007.  The increase in amortization of intangible assets is primarily
related to the Wartner acquisition.





Interest
Expense


Net
interest expense was $37.4 million for 2008 versus $39.5 million for
2007.  The reduction in interest expense was the result of a lower
level of total indebtedness, partially offset by higher interest rates on our
variable rate indebtedness.  The average cost of funds increased from
8.2% for 2007 to 8.6% for 2008, while the average indebtedness decreased from
$481.0 million for 2007 to $437.3 million for 2008.





Income
Taxes


The
income tax provision for 2008 was $20.3 million, with an effective rate of
37.4%, compared to $19.1 million, with an effective rate of 34.6% for
2007.  The 2007 amount includes a $2.2 million tax benefit resulting
from the reduction of the deferred income tax rate to 38.4% from 39.1% in
connection with the implementation of initiatives to obtain operational, as well
as tax, efficiencies.  As a result of operational efficiencies
identified during 2008, the Company has reduced its ongoing income tax rate to
37.9%.





-43-





Fiscal
2007 compared to Fiscal 2006





Revenues


2007
              Revenues
            
            
            %
            
            
            2006
              Revenues
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            174,704
            
            
            
            54.8
            
            
            $
            160,942
            
            
            
            54.3
            
            
            $
            13,762
            
            
            
            8.6Household
      Cleaning
            
            
            119,036
            
            
            
            37.4
            
            
            
            107,801
            
            
            
            36.3
            
            
            
            11,235
            
            
            
            10.4Personal
      Care
            
            
            24,894
            
            
            
            7.8
            
            
            
            27,925
            
            
            
            9.4
            
            
            
            (3,031
            )
            
            
            (10.9
            )$
            318,634
            
            
            
            100.0
            
            
            $
            296,668
            
            
            
            100.0
            
            
            $
            21,966
            
            
            
            7.4





The 7.4%
increase in revenues for 2007 versus 2006 was primarily a result of the
acquisitions of the Wartner brand, acquired in
September of 2006, and the Chore Boy and The Doctor’s brands acquired
in October and November 2005, respectively.  Excluding the impact of
the acquisitions, revenues were up 0.6%.  Revenue increases in
Over-the-Counter Healthcare and Household Cleaning segments were partially
offset by a decrease in the Personal Care segment.





Over-the-Counter
Healthcare Segment


Revenues
for the Over-the-Counter Healthcare segment increased $13.8 million, or 8.6% for
2007 versus 2006.  The increase was primarily attributable to the
acquisition of the Wartner and The Doctor’s
brands.  Excluding the impact of these acquisitions, revenues
increased 1.2%.  Revenue increases for Clear Eyes, Little Remedies, Murine and Dermoplast were partially
offset by revenue declines on Compound W, Chloraseptic and New
Skin.   The Clear Eyes revenue growth was
a result of continued strong consumer consumption trends, the launch of Clear Eyes Triple Action and
Maximum Redness Relief, and increased shipments to international customers. The
Little Remedies revenue
increase was a result of improved consumer consumption.  Dermoplast’s revenue increase
was due to increased shipments to institutional customers and the launch of
Dermoplast Poison
Ivy.  The Murine revenue increase was
primarily the result of improved consumer consumption of the ear
product.   The revenue decrease for Compound W was primarily a
result of weaker consumer consumption primarily in the cryogenic segment of the
wart remover category.  Chloraseptic’s revenue
decrease was primarily due to lower consumer consumption as a result of a weak
cough and cold flu season.  New Skin’srevenue decrease
was the result of softness in the liquid bandage category.





Household
Cleaning Segment


Revenues
for the Household Cleaning segment increased $11.2 million, or 10.4%, for 2007
versus 2006.  Excluding the acquisition of Chore Boy, revenues for this
segment increased 2.8% for the period.  Comet revenue increased
during the period due to strong consumer consumption, expanded distribution and
royalty revenues earned from licensing agreements in Eastern Europe and for
institutional sales in North America.  Revenues for the Spic and Span brand decreased
during the period as a result of lower sales to the dollar store
channel.





Personal
Care Segment


Revenues
of the Personal Care segment declined $3.0 million, or 10.9%, for 2007 versus
2006.  The revenue decrease was the result of continued declines in
consumer consumption trends for the Cutex, Denorex and Prell brands and was in
accordance with management’s expectations.








Gross
Profit


2007
              Gross
      Profit
            
            
            %
            
            
            2006
              Gross
      Profit
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            
            109,103
            
            
            
            62.5
            
            
            $
            102,451
            
            
            
            63.7
            
            
            $
            6,652
            
            
            
            6.5Household
      Cleaning
            
            
            46,034
            
            
            
            38.7
            
            
            
            42,713
            
            
            
            39.6
            
            
            
            3,321
            
            
            
            7.8Personal
      Care
            
            
            10,350
            
            
            
            41.6
            
            
            
            12,074
            
            
            
            43.2
            
            
            
            (1,724
            )
            
            
            (14.3
            )$
            165,487
            
            
            
            51.9
            
            
            $
            157,238
            
            
            
            53.0
            
            
            $
            8,249
            
            
            
            5.2





-44-


Gross
profit for 2007 increased $8.2 million, or 5.2%, versus 2006.  As a
percent of total revenue, gross profit decreased from 53.0% for 2006 to 51.9%
during 2007.  The decrease in gross profit percentage was a result of
inventory obsolescence, higher product costs and increased shipments to
non-North American distributors which have a lower margin than our domestic
markets, partially offset by lower distribution expense.  Shipments to
markets outside of North America represented 4.6% of total revenues in 2007
versus 3.4% for 2006.





Over-the-Counter
Healthcare Segment


Gross
profit for 2007 increased $6.6 million, or 6.5%, versus 2006.  As a
percent of OTC revenue, gross profit decreased from 63.7% for 2006 to 62.5%
during 2007.  The decrease in gross profit percentage was primarily a
result of obsolescence reserves of $2.6 million related to products in the cough
and cold category facing expiration dating.





Household
Cleaning Segment


Gross
profit for 2007 increased $3.3 million, or 7.8%, versus 2006.  As a
percent of household cleaning revenue, gross profit decreased from 39.6% for
2006 to 38.7% during 2007.  The decrease in gross profit percentage is
primarily a result of increased product costs partially offset by royalties
earned, with no associated costs, from our international and institutional
licensing arrangements with Procter & Gamble.





Personal
Care Segment


Gross
profit for 2007 decreased $1.7 million, or 14.3%, versus 2006.  As a
percent of personal care revenue, gross profit decreased from 43.2% for 2006 to
41.6% during 2007.  The decrease in gross profit percentage is a
result of increased promotional pricing allowances and product
costs.








Contribution
Margin


2007
              Contribution
      Margin
            
            
            %
            
            
            2006
              Contribution
      Margin
            
            
            %
            
            
            Increase
              (Decrease)
            
            
            %OTC
      Healthcare
            
            $
            84,902
            
            
            
            48.6
            
            
            $
            80,027
            
            
            
            49.7
            
            
            $
            4,875
            
            
            
            6.1Household
      Cleaning
            
            
            39,355
            
            
            
            33.1
            
            
            
            36,218
            
            
            
            33.6
            
            
            
            3,137
            
            
            
            8.7Personal
      Care
            
            
            9,225
            
            
            
            37.1
            
            
            
            8,911
            
            
            
            31.9
            
            
            
            314
            
            
            
            3.5$
            133,482
            
            
            
            41.9
            
            
            $
            125,156
            
            
            
            42.2
            
            
            $
            8,326
            
            
            
            6.7





Contribution
margin, defined as gross profit less advertising and promotional expenses,
increased $8.3 million, or 6.7% for 2007 versus 2006.  The
contribution margin increase was a result of the increase in sales and gross
profit as previously discussed, and a $77,000, or 0.2% reduction in advertising
and promotional spending.  The reduction in advertising and
promotional spending is primarily a result of a $2.0 million reduction in the
Personal Care segment mostly offset by an increase of $1.7 million in the
Over-the-Counter Healthcare segment and $200,000 in the Household Cleaning
segment.





Over-the-Counter
Healthcare Segment


Contribution
margin in the Over-the-Counter Healthcare segment increased by $4.9 million, or
6.1%, for 2007 versus 2006.  The contribution margin increase was a
result of the increase in sales and gross profit as previously discussed,
partially offset by a $1.7 million, or an 8.0%, increase in advertising and
promotional spending.  The increase in advertising and promotional
spending was primarily a result of increased media behind The Doctor’s NightGuardDental Protector, Little Remedies print media
and Chloraseptic
promotional spending, partially offset by a reduction in Clear Eyes and New Skin media.





Household
Cleaning Segment


Contribution
margin in the Household Cleaning segment increased by $3.1 million, or 8.7%, for
2007 versus 2006.  The contribution margin increase was a result of
the sales and gross profit increase previously discussed, slightly offset with a
$184,000, or a 2.8% increase in advertising and promotional
spending.  The increase is a result of a modest reduction of Comet media and promotional
spending offset by increased spending resulting from the Chore Boy
acquisition.





-45-


Personal
Care Segment


Contribution
margin in the personal care segment was up $314,000, or 3.5% for 2007 versus
2006.  The contribution margin increase was primarily the result of a
$2.0 million, or 64.4%, reduction in advertising and promotion spending versus
2006, partially offset by the gross profit decline as previously
discussed.  The reduction in advertising and promotion was due to the
Company’s strategic decision to redeploy advertising and promotional funds in
support of its growth brands in the other segments.





General
and Administrative


General
and administrative expenses were $28.4 million for 2007 versus $21.1 million for
2006.  The increase was primarily related to additional staff added
during the second half of 2006 and employee incentive plan compensation that was
not earned in 2006, as well as severance compensation related to the departure
of a member of management in 2007, increased stock-based compensation costs in
2007 and increased legal and professional fees in 2007.





Depreciation
and Amortization


Depreciation
and amortization expense was $10.4 million for 2007 versus $10.8 million for
2006.  An increase in amortization related to intangible assets
purchased in the Wartner and Dental Concepts
acquisitions was partially offset by a reduction of the carrying value of
certain trademarks in our Personal Care segment.  During the three
month period ended March 31, 2006, the Company recognized an asset impairment
charge of approximately $7.4 million related to this
segment.  Depreciation expense decreased by $1.0 million for 2007
versus 2006 due to the absence of depreciation charges for manufacturing
equipment that was fully depreciated as of January 31, 2006.





Impairment
of Intangible Assets and Goodwill


We
performed our impairment analyses of intangible assets and goodwill and
determined, in accordance with FASB Statements No. 142 and 144, that no
impairment existed in 2007.  During the three month period ended March
31, 2006, we recorded non-cash charges related to the impairment of certain
intangible assets and goodwill of the Personal Care segment of $7.4 million and
$1.9 million, respectively.  The impairment charges related to the
intangible assets and goodwill were the result of their carrying amounts
exceeding their fair market values as a result of declining sales.





Interest
Expense


Net
interest expense was $39.5 million for 2007 versus $36.3 million for the
comparable period of 2006.  This represented an increase of $3.2
million, or 8.7%, from 2006.  The increase in interest expense was due
to the increase in interest rates associated with our variable rate
indebtedness.  The average cost of funds increased from 6.3% for 2006
to 7.4% for 2007.





Income
Taxes


The
income tax provision for 2007 was $19.1 million, with an effective rate of
34.6%, compared to $21.3 million, with an effective rate of 44.7% for
2006.  During 2006, the Company increased the effective tax rate to
39.1% and adjusted the deferred tax liabilities as a result of the completion of
a state nexus study.  Fiscal 2007 includes a $2.2 million tax benefit
resulting from a reduction in the deferred income tax rate to 38.4% from 39.1%
as a result of the implementation of initiatives to obtain operational, as well
as tax, efficiencies.








Liquidity
and Capital Resources





Liquidity


We have
financed and expect to continue to finance our operations with a combination of
borrowings and funds generated from operations.  Pursuant to the terms
of our credit agreement, we can borrow an additional $200.0 million under our
Tranche B Term Loan Facility and up to $60.0 million under our Revolving Credit
Facility.


-46-


Our
principal uses of cash are for operating expenses, debt service, brand
acquisitions, working capital and capital expenditures.





Year
      Ended March 31(In
      thousands)
            
            2008
            
            
            2007
            
            
            2006Net
      cash provided by (used in):Operating
      activities
            
            $
            44,989
            
            
            $
            71,899
            
            
            $
            53,861Investing
      activities
            
            
            (537
            )
            
            
            (31,051
            )
            
            
            (54,163
            )Financing
      activities
            
            
            (52,132
            )
            
            
            (35,290
            )
            
            
            3,168








Fiscal 2008
compared to fiscal 2007


Operating
Activities


Net cash
provided by operating activities was $45.0 million for 2008 compared to $71.9
million 2007.  The $26.9 million decrease in net cash provided by
operating activities was primarily the result of the following:





·
            A
      decrease of net income of $2.1 million from $36.1 million for 2007 to
      $34.0 million for 2008,


·
            A
      change in the components of operating assets and liabilities of $26.0
      million as a result of net operating assets and liabilities increasing by
      $14.2 million in 2008 compared to a decrease of $11.8 million in 2007,
      and


·
            An
      increase in non-cash expenses of $1.3 million from $24.0 million for 2007
      to $25.3 million for 2008.





As a
result of the late cough/cold season and the timing of our March 2008 price
increase, accounts receivable increased $9.1 million versus March 31,
2007.  Additionally, our accrued liabilities were reduced by $4.3
million versus March 31, 2007.





Consistent
with 2007, the Company’s cash flow from operations exceeded net income due to
the substantial non-cash charges related to depreciation and amortization of
intangibles, increases in deferred income tax liabilities resulting from
differences in the amortization of intangible assets and goodwill for income tax
and financial reporting purposes, the amortization of certain deferred financing
costs and stock-based compensation.





Investing
Activities


Net cash
used for investing activities was $537,000 for 2008 compared to $31.1 million
for 2007.  The net cash used for investing activities in 2008 was for
the acquisition of property and equipment, while during 2007, net cash used for
investing activities was primarily for the acquisition of Wartner USA
B.V.





Financing
Activities


Net cash
used for financing activities was $52.1 million for 2008 compared to $35.3
million for 2007.  During 2008, the Company repaid $48.6 million of
indebtedness in excess of normal maturities with cash generated from operations,
while during 2007 such repayments amounted to $31.6 million.  This
reduced our outstanding indebtedness to $411.2 million at March 31, 2008 from
$498.6 million at March 31, 2006.







Fiscal 2007
compared to fiscal 2006


Operating
Activities


Net cash
provided by operating activities was $71.9 million for 2007 compared to $53.9
million 2006.  The $18.0 million increase in net cash provided by
operating activities was primarily the result of the following:





·
            An
      increase of net income of $9.8 million from $26.3 million for 2006 to
      $36.1 million for 2007,


·
            An
      improvement of $22.3 million in the components of operating assets and
      liabilities as a result of net operating assets and liabilities decreasing
      by $11.8 million in 2007 compared to an increase of $10.5 million in 2006,
      offset by


·
            A
      decrease in non-cash expenses of $14.1 million from $38.1 million for 2006
      to $24.0 million for 2007.




-47-


The
Company’s cash flow from operations exceeded net income due to the substantial
non-cash charges related to depreciation and amortization of intangibles,
increases in deferred income tax liabilities resulting from differences in the
amortization of intangible assets and goodwill for income tax and financial
reporting purposes, the amortization of certain deferred financing costs and
stock-based compensation.





Investing
Activities


Net cash
used for investing activities was $31.1 million for 2007 compared to $54.2
million for 2006.  The net cash used for investing activities for 2007
was primarily the result of the acquisition of Wartner USA B.V., while during
2006, cash was used primarily for the acquisitions of the Chore Boy brand of cleaning
pads and sponges and The
Doctor’s brand of therapeutic oral care products.





Financing
Activities


Net cash
used for financing activities was $35.3 million for 2007 compared to net cash
provided by financing activities of $3.2 million for 2006.  During
2007, the Company repaid $31.6 million of indebtedness in excess of normal
maturities with cash generated from operations.  This reduced our
outstanding indebtedness to $463.3 million from $498.6 million at March 31,
2006.  In November 2005, the Company incurred $30.0 million of
indebtedness to fund the acquisition of Dental Concepts LLC.  Of such
amount, $23.0 million was repaid during 2006.








Capital
Resources





As of
March 31, 2008, we had an aggregate of $411.2 million of outstanding
indebtedness, which consisted of the following:





·
            $285.2
      million of borrowings under the Tranche B Term Loan Facility,
      and





·
            $126.0
      million of 9.25% Senior Subordinated Notes due
  2012.





We had
$60.0 million of borrowing capacity available under the Revolving Credit
Facility at such time, as well as $200.0 million available under the Tranche B
Term Loan Facility.





All loans
under the Senior Credit Facility bear interest at floating rates, based on
either the prime rate, or at our option, the LIBOR rate, plus an applicable
margin.  As of March 31, 2008, an aggregate of $285.2 million was
outstanding under the Senior Credit Facility at a weighted average interest rate
of 6.97%.





As deemed
appropriate, the Company uses derivative financial instruments to mitigate the
impact of changing interest rates associated with its long-term debt
obligations.  While the Company does not enter into derivative
financial instruments for trading purposes, all of these derivatives are
straightforward over-the-counter instruments with liquid markets.  The
notional, or contractual, amount of the Company’s derivative financial
instruments is used to measure the amount of interest to be paid or received and
does not represent an exposure to credit risk.





In June
2004, the Company purchased a 5% interest rate cap with a notional amount of
$20.0 million which expired in June 2006.  In March 2005, the Company
purchased interest rate cap agreements with a total notional amount of $180.0
million the terms of which are as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





-48-


The
Company is accounting for the interest rate cap agreements as cash flow
hedges.  The fair value of the interest rate cap agreements, which is
included in other long-term assets, was $0.0 and $1.2 million at March 31, 2008 and 2007,
respectively.





In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009.  The Company has agreed to pay a
fixed rate of 2.88% while receiving a variable rate based on
Libor.  The agreement terminates on March 26, 2010.  The
fair value of the interest rate swap agreement, which is included in current
liabilities at March 31, 2008, was $1.5 million.





The
Tranche B Term Loan Facility matures in October 2011.  We must make
quarterly principal payments on the Tranche B Term Loan Facility equal to
$887,500, representing 0.25% of the initial principal amount of the term
loan.  The Revolving Credit Facility matures and the commitments
relating to the Revolving Credit Facility terminate in April 2009.





The
Revolving Credit Facility and the Tranche B Term Loan Facility contain various
financial covenants, including provisions that require us to maintain certain
leverage ratios, interest coverage ratios and fixed charge coverage
ratios.  The Revolving Credit Facility and the Tranche B Term Loan
Facility, as well as the Senior Subordinated Notes, contain provisions that
accelerate our indebtedness on certain changes in control and restrict us from
undertaking specified corporate actions, including asset dispositions,
acquisitions, payment of dividends and other specified payments, repurchasing
the Company’s equity securities in the public markets, incurrence of
indebtedness, creation of liens, making loans and investments and transactions
with affiliates.  Specifically, we must:





·
            Have
      a leverage ratio of less than 4.5 to 1.0 for the quarter ended March 31,
      2008, decreasing over time to 3.75 to 1.0 for the quarter ending September
      30, 2010, and remaining level
thereafter,





·
            Have
      an interest coverage ratio of greater than 2.75 to 1.0 for the quarter
      ended March 31, 2008, increasing over time to 3.25 to 1.0 for the quarter
      ending March 31, 2010, and remaining level thereafter,
  and





·
            Have
      a fixed charge coverage ratio of greater than 1.5 to 1.0 for the quarter
      ended March 31, 2008, and for each quarter thereafter until the quarter
      ending March 31, 2011.





At March
31, 2008, we were in compliance with the applicable financial and restrictive
covenants under the Senior Credit Facility and the Indenture governing the
Senior Subordinated Notes.





Our
principal sources of funds are anticipated to be cash flows from operating
activities and available borrowings under the Revolving Credit Facility and
Tranche B Term Loan Facility.  We believe that these funds will
provide us with sufficient liquidity and capital resources for us to meet our
current and future financial obligations, as well as to provide funds for
working capital, capital expenditures and other needs for at least the next 12
months.  As part of our growth strategy, we regularly review
acquisition opportunities and other potential strategic transactions, which may
require additional debt or equity financing.  If additional financing
is required, there are no assurances that it will be available, or if available,
that it can be obtained on terms favorable to us or on a basis that is not
dilutive to our stockholders.





-49-


Commitments
 
 As of
March 31, 2008, we had ongoing commitments under various contractual and
commercial obligations as follows:
  Payments
      Due by Period(In
      Millions)
              
              
              
              
              Less than
              
              
              1 to 3
              
              
              4 to 5
              
              
              After 5Contractual
      Obligations
              
              Total
              
              
              1 Year
              
              
              Years
              
              
              Years
              
              
              YearsLong-term
      debt
              
              $
              411.3
              
              
              $
              3.6
              
              
              $
              7.1
              
              
              $
              274.6
              
              
              $
              126.0Interest
      on long-term debt (1)
              
              
              106.2
              
              
              
              31.7
              
              
              
              62.0
              
              
              
              12.5
              
              
              
              --Purchase
      obligations:Inventory
      costs (2)
              
              
              29.6
              
              
              
              29.4
              
              
              
              0.2
              
              
              
              --
              
              
              
              --Other
      costs (3)
              
              
              3.4
              
              
              
              3.4
              
              
              
              --
              
              
              
              --
              
              
              
              --Operating
      leases
              
              
              3.7
              
              
              
              0.7
              
              
              
              1.2
              
              
              
              1.2
              
              
              
              0.6Total
      contractual cash obligations
              
              $
              554.2
              
              
              $
              68.8
              
              
              $
              70.5
              
              
              $
              288.3
              
              
              $
              126.6
 
 (1)
              Represents
      the estimated interest obligations on the outstanding balances of the
      Revolving Credit Facility, Tranche B Term Loan Facility and Senior
      Subordinated Notes, together, assuming scheduled principal payments (based
      on the terms of the loan agreements) were made and assuming a weighted
      average interest rate of 7.67%.  Estimated interest obligations
      would be different under different assumptions regarding interest rates or
      timing of principal payments.  If interest rates on borrowings
      with variable rates increased by 1%, interest expense would increase
      approximately $2.9 million, in the first year.  However, given
      the protection afforded by the interest rate swap agreement, the impact of
      a one percentage point increase would be limited to $1.6
      million.
 
 (2)
              Purchase
      obligations for inventory costs are legally binding commitments for
      projected inventory requirements to be utilized during the normal course
      of our operations.
 
 (3)
              Purchase
      obligations for other costs are legally binding commitments for marketing,
      advertising and capital expenditures.  Activity costs for molds
      and equipment to be paid, based solely on a per unit basis without any
      deadlines for final payment, have been excluded from the table because we
      are unable to determine the time period over which such activity costs
      will be paid.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements or financing activities with
special-purpose entities.
 
 Inflation
 
 Inflationary
factors such as increases in the costs of raw materials, packaging materials,
purchased product and overhead may adversely affect our operating
results.  Although we do not believe that inflation has had a material
impact on our financial condition or results from operations for the periods
referred to above, a high rate of inflation in the future could have a material
adverse effect on our business, financial condition or results from
operations.  The recent increase in crude oil prices has had an
adverse impact on transportation costs, as well as, certain petroleum based raw
materials and packaging material.  Although the Company takes efforts
to minimize the impact of inflationary factors, including raising prices to our
customers, a high rate of pricing volatility associated with crude oil supplies
may continue to have an adverse effect on our operating
results.


-50-


CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”),
including, without limitation, information within Management’s Discussion and
Analysis of Financial Condition and Results of Operations.  The
following cautionary statements are being made pursuant to the provisions of the
PSLRA and with the intention of obtaining the benefits of the “safe harbor”
provisions of the PSLRA.  Although we believe that our expectations
are based on reasonable assumptions, actual results may differ materially from
those in the forward-looking statements.





Forward-looking
statements speak only as of the date of this Annual Report on
Form 10-K.  Except as required under federal securities laws and
the rules and regulations of the SEC, we do not have any intention to update any
forward-looking statements to reflect events or circumstances arising after the
date of this Annual Report on Form 10-K, whether as a result of new information,
future events or otherwise.  As a result of these risks and
uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements included in this Annual Report on Form 10-K or that
may be made elsewhere from time to time by, or on behalf of, us.  All
forward-looking statements attributable to us are expressly qualified by these
cautionary statements.





These
forward-looking statements generally can be identified by the use of words or
phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
be,” “will continue,” “will likely result,” or other similar words and
phrases.  Forward-looking statements and our plans and expectations
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, and our business in general
is subject to such risks.  For more information, see “Risk Factors”
contained in Item 1A. of this Annual Report on Form 10-K.  In
addition, our expectations or beliefs concerning future events involve risks and
uncertainties, including, without limitation:





·
            General
      economic conditions affecting our products and their respective
      markets,




·
            Our
      ability to increase organic growth via new product introductions or line
      extensions,




·
            The
      high level of competition in our industry and
  markets,




·
            Our
      ability to invest in research and
development,




·
            Our
      dependence on a limited number of customers for a large portion of our
      sales,




·
            Disruptions
      in our distribution center,




·
            Acquisitions
      or other strategic transactions diverting managerial resources, or
      incurrence of additional liabilities or integration problems associated
      with such transactions,




·
            Changing
      consumer trends or pricing pressures which may cause us to lower our
      prices,




·
            Increases
      in supplier prices,




·
            Increases
      in transportation and fuel charges,




·
            Changes
      in our senior management team,




·
            Our
      ability to protect our intellectual property
  rights,




·
            Our
      dependency on the reputation of our brand
names,




·
            Shortages
      of supply of sourced goods or interruptions in the manufacturing of our
      products,




·
            Our
      level of indebtedness, and ability to service our
  debt,




·
            Any
      adverse judgments rendered in any pending litigation or
      arbitration,




·
            Our
      ability to obtain additional financing,
and




·
            The
      restrictions imposed by our senior credit facility and the indenture on
      our operations.




-51-


ITEM 7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are
exposed to changes in interest rates because our senior credit facility is
variable rate debt.  Interest rate changes, therefore, generally do
not affect the market value of such debt, but do impact the amount of our
interest payments and, therefore, our future earnings and cash flows, assuming
other factors are held constant.  At March 31, 2008 we had variable
rate debt of approximately $285.2 million related to our Tranche B term
loan.





In an effort to protect
the Company from the adverse impact that rising interest rates would have on our
variable rate debt, we have entered into various interest rate cap agreements to
hedge this exposure.In June 2004, the Company purchased a 5%
interest rate cap with a notional amount of $20.0 million which expired in June
2006.  In March 2005, the Company purchased interest rate cap
agreements with a total notional amount of $180.0 million the terms of which are
as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009.  The Company has agreed to pay a
fixed rate of 2.88% while receiving a variable rate based on
Libor.  The agreement terminates on March 26, 2010.





Holding
other variables constant, including levels of indebtedness, a one percentage
point increase in interest rates on our variable rate debt would have an adverse
impact on pre-tax earnings and cash flows for fiscal 2009 of approximately $2.9
million.  However, given the protection afforded by these protective
interest rate agreements, the impact of a one percentage point increase would be
limited to $1.6 million.  The fair value of the interest rate cap
agreements was $0.0 at March 31, 2008, while the liability associated with the
fair value of the interest rate swap was $1.5 million.






ITEM
      8.
            FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA




The
financial statements and supplementary data required by this Item are described
in Part IV, Item 15 of this Annual Report on Form 10-K and are presented
beginning on page F-1.








ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.




ITEM
      9A.
              CONTROLS AND
      PROCEDURES


Disclosure
Controls and Procedures





The
Company’s management, with the participation of its Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures, as defined in Rule 13a–15(e) of the
Securities Exchange Act of 1934 (“Exchange Act”) as of March 31,
2008.  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of March 31, 2008, the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and that such
information is accumulated and communicated to the Company’s management,
including the Company’s Chief




-52-


Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.








Management’s
Annual Report on Internal Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) of the Exchange
Act).  Internal control over financial reporting is a process designed
by, or under the supervision of the Chief Executive Officer and Chief Financial
Officer and effected by the Board of Directors, Management and other personnel,
to provide reasonable assurance regarding reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable, not absolute, assurance
that the control objectives will be met.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate over
time.





Management,
with the participation of the Chief Executive Officer and Chief Financial
Officer, has assessed the effectiveness of the Company’s internal control over
financial reporting as of March 31, 2008.  In making its assessment,
management has used the criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (the “COSO Criteria”).





Based on
our assessment utilizing the COSO Criteria, management has concluded that the
Company’s internal control over financial reporting was effective as of March
31, 2008.





Changes
in Internal Control over Financial Reporting





There
have been no changes during the quarter ended March 31, 2008 in the Company’s
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.







ITEM 9B.
            OTHER
    INFORMATION





None.





-53-


Part
III










ITEM
      10.
            DIRECTORS, EXECUTIVE OFFICERS
      AND CORPORATE GOVERNANCE





Information
required to be disclosed by this Item will be contained in the Company’s 2008
Proxy Statement, which is incorporated herein by reference.







ITEM
      11.
              EXECUTIVE
      COMPENSATION


Information
required to be disclosed by this Item will be contained in the Company’s 2008
Proxy Statement, which is incorporated herein by reference.







ITEM 12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





Information
required to be disclosed by this Item will be contained in the Company’s 2008
Proxy Statement, which is incorporated herein by reference.








ITEM 13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
    INDEPENDENCE





Information
required to be disclosed by this Item will be contained in the Company’s 2008
Proxy Statement, which is incorporated herein by reference.







ITEM
      14.
              PRINCIPAL ACCOUNTING FEES AND
      SERVICES


Information
required to be disclosed by this Item will be contained in the Company’s 2008
Proxy Statement, which is incorporated herein by reference.




-54-


Part
IV





ITEM
      15.
              EXHIBITS AND FINANCIAL
      STATEMENT SCHEDULES


(a)
(1)                   Financial
Statements




The
financial statements and financial statement schedules listed below are set
forth at pages F-1 through F-32 of this Annual Report on Form 10-K, which are
incorporated herein to this Item as if copied verbatim.





Prestige
      Brands Holdings, Inc.Report
      of Independent Registered Public Accounting Firm,
              PricewaterhouseCoopers
      LLPConsolidated
      Statements of Operations for each of the three years in
              the
      period ended March 31, 2008Consolidated
      Balance Sheets at March 31, 2008 and 2007Consolidated
      Statements of Stockholders’ Equity and Comprehensive
              Income
      for each of the three years in the period ended March 31,
    2008Consolidated
      Statements of Cash Flows for each of the three years
              in
      the period ended March 31, 2008Notes
      to Consolidated Financial StatementsSchedule
      II—Valuation and Qualifying
Accounts





(a)
(2)                   Financial
Statement Schedules





Schedule
II - Valuation and Qualifying Accounts listed in (a)(1) above is incorporated
herein by reference as if copied verbatim.  Schedules other than those
listed in the preceding sentence have been omitted as they are either not
required, not applicable, or the information has otherwise been shown in the
consolidated financial statements or notes thereto.





(b)           Exhibits





See
Exhibit Index immediately following the financial statements and financial
statement schedules of this Annual Report on Form 10-K.




-55-


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





PRESTIGE
BRANDS HOLDINGS, INC.





By:/s/PETER J.
ANDERSON


Name:      Peter
J. Anderson


Title:        Chief Financial
Officer


Date:        June
13, 2008








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/MARK
      PETTIE
            
            Chairman
      of the Board
              and
      Chief Executive Officer
            
            June
      13, 2008Mark
      Pettie
            
            (Principal
      Executive Officer)/s/PETER J.
      ANDERSON
            
            Chief
      Financial Officer
            
            June
      13, 2008Peter
      J. Anderson
            
            (Principal
      Financial Officer andPrincipal
      Accounting Officer)/s/
      L. DICK BUELL
            
            Director
            
            June
      13, 2008L.
      Dick Buell/s/ JOHN E.
      BYOM
            
            Director
            
            June
      13, 2008John
      E. Byom/s/
      GARY E. COSTLEY
            
            Director
            
            June
      13, 2008Gary
      E. Costley/s/
      DAVID A. DONNINI
            
            Director
            
            June
      13, 2008David
      A. Donnini/s/
      RONALD B. GORDON
            
            Director
            
            June
      13, 2008Ronald
      B. Gordon/s/
      VINCENT J. HEMMER
            
            Director
            
            June
      13, 2008Vincent
      J. Hemmer/s/
      PATRICK M. LONERGAN
            
            Director
            
            June
      13, 2008Patrick
      M. Lonergan/s/
      PETER C. MANN
            
            Director
            
            June
      13, 2008Peter
      C. Mann/s/
      RAYMOND P. SILCOCK
            
            Director
            
            June
      13, 2008Raymond
      P. Silcock











-56-








INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS








Prestige
Brands Holdings, Inc.





Audited
Financial Statements





March
31, 2008








Report
      of Independent Registered Public Accounting Firm,
              PricewaterhouseCoopers
      LLP
            
            F-1Consolidated
      Statements of Operations for each of the three years in
              the
      period ended March 31, 2008
            
            F-2Consolidated
      Balance Sheets at March 31, 2008 and 2007
            
            F-3Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income for
              each
      of the three years in the period ended March 31, 2008
            
            F-4Consolidated
      Statements of Cash Flows for each of the three years
              in
      the period ended March 31, 2008
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7Schedule
      II—Valuation and Qualifying Accounts
            
            F-31











-57-





Report
of Independent Registered Public Accounting Firm











To the
Board of Directors and Stockholders


Prestige
Brands Holdings, Inc.





In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Prestige Brands Holdings, Inc. and its subsidiariesat March 31,
2008 and 2007, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America.  In addition, in our opinion, the financial statement
schedule listed under Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidatedfinancial
statements.  Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
March 31, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company’s management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Annual Report on Internal Control over Financial Reporting
appearing under Item 9A.  Our responsibility is to express opinions on
these financial statements, on the financial statement schedule, and on the
Company’s internal control over financial reporting based on our integrated
audits.  We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects.  Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk.  Our audits also included
performing such other procedures as we considered necessary in the
circumstances.  We believe that our audits provide a reasonable basis
for our opinions.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 /s/
PricewaterhouseCoopers LLP
 
 Salt Lake
City, Utah
 June 13,
2008


F-1


Prestige
Brands Holdings, Inc.


Consolidated
Statements of Operations











Year
      Ended March 31(In
      thousands, except per share data)
            
            2008
            
            
            2007
            
            
            2006RevenuesNet
      sales
            
            $
            324,621
            
            
            $
            316,847
            
            
            $
            296,239Other
      revenues
            
            
            1,982
            
            
            
            1,787
            
            
            
            429Total
      revenues
            
            
            326,603
            
            
            
            318,634
            
            
            
            296,668Cost
      of SalesCost
      of sales
            
            
            158,096
            
            
            
            153,147
            
            
            
            139,430Gross
      profit
            
            
            168,507
            
            
            
            165,487
            
            
            
            157,238Operating
      ExpensesAdvertising
      and promotion
            
            
            34,665
            
            
            
            32,005
            
            
            
            32,082General
      and administrative
            
            
            31,414
            
            
            
            28,416
            
            
            
            21,158Depreciation
      and amortization
            
            
            11,014
            
            
            
            10,384
            
            
            
            10,777Impairment
      of goodwill
            
            
            --
            
            
            
            --
            
            
            
            1,892Impairment
      of intangible asset
            
            
            --
            
            
            
            --
            
            
            
            7,425Total
      operating expenses
            
            
            77,093
            
            
            
            70,805
            
            
            
            73,334Operating
      income
            
            
            91,414
            
            
            
            94,682
            
            
            
            83,904Other
      (income) expenseInterest
      income
            
            
            (675
            )
            
            
            (972
            )
            
            
            (568
            )Interest
      expense
            
            
            38,068
            
            
            
            40,478
            
            
            
            36,914Miscellaneous
            
            
            (187
            )
            
            
            --
            
            
            
            --Total
      other (income) expense
            
            
            37,206
            
            
            
            39,506
            
            
            
            36,346Income
      before income taxes
            
            
            54,208
            
            
            
            55,176
            
            
            
            47,558Provision
      for income taxes
            
            
            20,289
            
            
            
            19,098
            
            
            
            21,281Net
      income
            
            $
            33,919
            
            
            
            36,078
            
            
            
            26,277Basic
      earnings per share
            
            $
            0.68
            
            
            $
            0.73
            
            
            $
            0.54Diluted
      earnings per share
            
            $
            0.68
            
            
            $
            0.72
            
            
            $
            0.53Weighted
      average shares outstanding:
              Basic
            
            
            49,751
            
            
            
            49,460
            
            
            
            48,908Diluted
            
            
            50,039
            
            
            
            50,020
            
            
            
            50,008





See
accompanying notes.




F-2


Prestige
Brands Holdings, Inc.


Consolidated
Balance Sheets











(In
      thousands)
            
            March
      31Assets
            
            2008
            
            
            2007Current
      assetsCash
      and cash equivalents
            
            $
            6,078
            
            
            $
            13,758Accounts
      receivable
            
            
            44,219
            
            
            
            35,167Inventories
            
            
            29,696
            
            
            
            30,173Deferred
      income tax assets
            
            
            3,066
            
            
            
            2,735Prepaid
      expenses and other current assets
            
            
            2,316
            
            
            
            1,935Total
      current assets
            
            
            85,375
            
            
            
            83,768Property
      and equipment
            
            
            1,433
            
            
            
            1,449Goodwill
            
            
            308,915
            
            
            
            310,947Intangible
      assets
            
            
            646,683
            
            
            
            657,157Other
      long-term assets
            
            
            6,750
            
            
            
            10,095Total
      Assets
            
            $
            1,049,156
            
            
            $
            1,063,416Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            20,539
            
            
            $
            19,303Accrued
      interest payable
            
            
            5,772
            
            
            
            7,552Other
      accrued liabilities
            
            
            8,030
            
            
            
            10,505Current
      portion of long-term debt
            
            
            3,550
            
            
            
            3,550Total
      current liabilities
            
            
            37,891
            
            
            
            40,910Long-term
      debt
            
            
            407,675
            
            
            
            459,800Other
      long-term liabilities
            
            
            2,377
            
            
            
            2,801Deferred
      income tax liabilities
            
            
            122,140
            
            
            
            114,571Total
      Liabilities
            
            
            570,083
            
            
            
            618,082Commitments
      and Contingencies – Note 15Stockholders’
      EquityPreferred
      stock - $0.01 par valueAuthorized – 5,000
      sharesIssued and outstanding –
      None
            
            
            --
            
            
            
            --Common
      stock - $0.01 par valueAuthorized – 250,000
      sharesIssued – 50,060 shares at March
      31, 2008 and 2007
            
            
            501
            
            
            
            501Additional
      paid-in capital
            
            
            380,364
            
            
            
            379,225Treasury
      stock, at cost – 59 shares and 55 shares at March 31, 2008 and 2007,
      respectively
            
            
            (47
            )
            
            
            (40
            )Accumulated
      other comprehensive income
            
            
            (999
            )
            
            
            313Retained
      earnings
            
            
            99,254
            
            
            
            65,335Total
      stockholders’ equity
            
            
            479,073
            
            
            
            445,334Total
      Liabilities and Stockholders’ Equity
            
            $
            1,049,156
            
            
            $
            1,063,416





See
accompanying notes.




F-3


Prestige
Brands Holdings, Inc.


Consolidated
Statement of Changes in Stockholders’


Equity
and Comprehensive Income








Common
      Stock
              Par
              Shares                 
      Value
            
            
            Additional
              Paid-in
              Capital
            
            
            Treasury
      Stock
              Shares                
       Amount
            
            
            Accumulated
              Other
              Comprehensive
              Income
            
            
            Retained
              Earnings
            
            
            Totals(In
      thousands)Balances
      at March 31, 2005
            
            
            50,000
            
            
            $
            500
            
            
            $
            378,251
            
            
            
            2
            
            
            $
            (4
            )
            
            $
            320
            
            
            $
            2,980
            
            
            $
            382,047Additional
      costs associated with initial public offering
            
            
            --
            
            
            
            --
            
            
            
            (63
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (63
            )Stock-based
      compensation
            
            
            56
            
            
            
            1
            
            
            
            382
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            383Purchase
      of common stock for treasury
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            16
            
            
            
            (26
            )
            
            
            --
            
            
            
            --
            
            
            
            (26
            )Components
      of comprehensive incomeNet
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            26,277
            
            
            
            26,277Amortization
      of interest rate caps reclassified into earnings, net of income tax
      expense of $192
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            298
            
            
            
            --
            
            
            
            298Unrealized
      gain on interest rate caps, net of income tax expense of
    $208
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            491
            
            
            
            --
            
            
            
            491Total
      comprehensive income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            27,066Balances
      at March 31, 2006
            
            
            50,056
            
            
            
            501
            
            
            
            378,570
            
            
            
            18
            
            
            
            (30
            )
            
            
            1,109
            
            
            
            29,257
            
            
            
            409,407Stock-based
      compensation
            
            
            4
            
            
            
            --
            
            
            
            655
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            655Purchase
      of common stock for treasury
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            37
            
            
            
            (10
            )
            
            
            --
            
            
            
            --
            
            
            
            (10
            )Components
      of comprehensive incomeNet
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            36,078
            
            
            
            36,078Amortization
      of interest rate caps reclassified into earnings, net of income tax
      expense of $429
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            678
            
            
            
            --
            
            
            
            678Unrealized
      loss on interest rate caps, net of income tax benefit of
    $931
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (1,474
            )
            
            
            --
            
            
            
            (1,474
            )Total
      comprehensive income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            35,282Balances
      at March 31, 2007
            
            
            50,060
            
            
            $
            501
            
            
            $
            379,225
            
            
            
            55
            
            
            $
            (40
            )
            
            $
            313
            
            
            $
            65,335
            
            
            $
            445,334


See
accompanying notes.




F-4


Prestige
Brands Holdings, Inc.


Consolidated
Statement of Changes in Stockholders’


Equity
and Comprehensive Income


(Continued)








Common
      Stock
              Par
              Shares                    Value
            
            
            Additional
              Paid-in
              Capital
            
            
            Treasury
      Stock
              Shares                
      Amount
            
            
            Accumulated
              Other
              Comprehensive
              Income
            
            
            Retained
              Earnings
            
            
            Totals(In
      thousands)Balances
      at March 31, 2007
            
            
            50,060
            
            
            $
            501
            
            
            $
            379,225
            
            
            
            55
            
            
            
            (40
            )
            
            
            313
            
            
            
            65,335
            
            
            
            445,334Stock-based
      compensation
            
            
            --
            
            
            
            --
            
            
            
            1,139
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,139Purchase
      of common stock for treasury
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            4
            
            
            
            (7
            )
            
            
            --
            
            
            
            --
            
            
            
            (7
            )Components
      of comprehensive incomeNet
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            33,919
            
            
            
            33,919Amortization
      of interest rate caps reclassified into earnings, net of income tax
      expense of $228
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            373
            
            
            
            --
            
            
            
            373Unrealized
      loss on interest rate caps, net of income tax benefit of
    $458
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (738
            )
            
            
            --
            
            
            
            (738
            )Unrealized
      loss on interest rate swap, net of income tax benefit of
    $580
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (947
            )
            
            
            --
            
            
            
            (947
            )Total
      comprehensive income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            32,607Balances
      at March 31, 2008
            
            
            50,060
            
            
            $
            501
            
            
            $
            380,364
            
            
            
            59
            
            
            $
            (47
            )
            
            $
            (999
            )
            
            $
            99,254
            
            
            $
            479,073








F-5


Prestige
Brands Holdings, Inc.


Consolidated
Statements of Cash Flows








Year
      Ended March 312008
            
            
            2007
            
            
            2006(In
      thousands)Operating
      ActivitiesNet
      income
            
            $
            33,919
            
            
            $
            36,078
            
            
            $
            26,277Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            11,014
            
            
            
            10,384
            
            
            
            10,777Amortization
      of financing costs
            
            
            3,007
            
            
            
            3,257
            
            
            
            2,649Impairment
      of goodwill and intangible assets
            
            
            --
            
            
            
            --
            
            
            
            9,317Deferred
      income taxes
            
            
            10,096
            
            
            
            9,662
            
            
            
            14,976Stock-based
      compensation costs
            
            
            1,139
            
            
            
            655
            
            
            
            383Changes
      in operating assets and liabilities, net of effects of purchases of
      businessesAccounts
      receivable
            
            
            (9,052
            )
            
            
            4,875
            
            
            
            (1,350
            )Inventories
            
            
            477
            
            
            
            4,292
            
            
            
            (7,156
            )Prepaid
      expenses and other assets
            
            
            (381
            )
            
            
            (1,235
            )
            
            
            2,623Accounts
      payable
            
            
            (975
            )
            
            
            (186
            )
            
            
            (6,037
            )Income
      taxes payable
            
            
            --
            
            
            
            (1,795
            )
            
            
            1,795Other
      accrued liabilities
            
            
            (4,255
            )
            
            
            5,912
            
            
            
            (393
            )Net
      cash provided by operating activities
            
            
            44,989
            
            
            
            71,899
            
            
            
            53,861Investing
      ActivitiesPurchases
      of equipment
            
            
            (488
            )
            
            
            (540
            )
            
            
            (519
            )Purchases
      of intangible assets
            
            
            (33
            )
            
            
            --
            
            
            
            (22,655
            )Change
      in other assets due to purchase price adjustments
            
            
            (16
            )
            
            
            750
            
            
            
            --Purchases
      of businesses, net
            
            
            --
            
            
            
            (31,261
            )
            
            
            (30,989
            )Net
      cash used for investing activities
            
            
            (537
            )
            
            
            (31,051
            )
            
            
            (54,163
            )Financing
      ActivitiesProceeds
      from the issuance of notes
            
            
            --
            
            
            
            --
            
            
            
            30,000Payment
      of deferred financing costs
            
            
            --
            
            
            
            --
            
            
            
            (13
            )Repayment
      of notes
            
            
            (52,125
            )
            
            
            (35,280
            )
            
            
            (26,730
            )Proceeds
      from the issuance of equity, net
            
            
            --
            
            
            
            --
            
            
            
            (63
            )Redemption
      of equity interests
            
            
            (7
            )
            
            
            (10
            )
            
            
            (26
            )Net
      cash provided by (used for) financing activities
            
            
            (52,132
            )
            
            
            (35,290
            )
            
            
            3,168Increase
      (decrease) in cash
            
            
            (7,680
            )
            
            
            5,558
            
            
            
            2,866Cash
      - beginning of year
            
            
            13,758
            
            
            
            8,200
            
            
            
            5,334Cash
      - end of year
            
            $
            6,078
            
            
            $
            13,758
            
            
            $
            8,200Supplemental
      Cash Flow InformationPurchases of
      BusinessesFair
      value of assets acquired, net of cash acquired
            
            $
            --
            
            
            $
            42,115
            
            
            $
            34,706Fair
      value of liabilities assumed
            
            
            --
            
            
            
            (10,854
            )
            
            
            (3,717
            )Cash
      paid to purchase businesses
            
            $
            --
            
            
            $
            31,261
            
            
            $
            30,989Interest
      paid
            
            $
            36,840
            
            
            $
            37,234
            
            
            $
            33,760Income
      taxes paid
            
            $
            9,490
            
            
            $
            11,751
            
            
            $
            2,852


See
accompanying notes.




F-6


Prestige
Brands Holdings, Inc.


Notes
to Consolidated Financial Statements











1.
            Business
      and Basis of Presentation





Nature
      of Business


Prestige
Brands Holdings, Inc. (referred to herein as the “Company” which reference
shall, unless the context requires otherwise, be deemed to refer to Prestige
Brands Holdings, Inc. and all of its direct or indirect wholly-owned
subsidiaries on a consolidated basis) is engaged in the marketing, sales and
distribution of over-the-counter healthcare, household cleaning and personal
care brands to mass merchandisers, drug stores, supermarkets and club stores
primarily in the United States and Canada.  Prestige Brands Holdings,
Inc. is a holding company with no assets or operations and is also the parent
guarantor of the senior revolving credit facility, senior secured term loan
facility and the senior subordinated notes more fully described in Note 9 to the
consolidated financial statements.





Basis
      of Presentation


The
Company’s consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States.  All
significant intercompany transactions and balances have been eliminated in
consolidation.  The Company’s fiscal year ends on March 31st of each
year.  References in these consolidated financial statements or notes
to a year (e.g., “2008”) means the Company’s fiscal year ended on March 31st of
that year.





Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period.  Although these estimates are
based on the Company’s knowledge of current events and actions that the Company
may undertake in the future, actual results could differ from those
estimates.  As discussed below, the Company’s most significant
estimates include those made in connection with the valuation of intangible
assets, sales returns and allowances, trade promotional allowances and inventory
obsolescence.




Cash
      and Cash Equivalents


The
Company considers all short-term deposits and investments with original
maturities of three months or less to be cash
equivalents.  Substantially all of the Company’s cash is held by one
bank located in Wyoming.  The Company does not believe that, as a
result of this concentration, it is subject to any unusual financial risk beyond
the normal risk associated with commercial banking relationships.





Accounts
      Receivable


The
Company extends non-interest bearing trade credit to its customers in the
ordinary course of business.  The Company maintains an allowance for
doubtful accounts receivable based upon historical collection experience and
expected collectibility of the accounts receivable.  In an effort to
reduce credit risk, the Company (i) has established credit limits for all of its
customer relationships, (ii) performs ongoing credit evaluations of customers’
financial condition, (iii) monitors the payment history and aging of customers’
receivables, and (iv) monitors open orders against an individual customer’s
outstanding receivable balance.





Inventories


Inventories
are stated at the lower of cost or fair value, where cost is determined by using
the first-in, first-out method.  The Company provides an allowance for
slow moving and obsolete inventory, whereby it reduces inventories for the
diminution of value, resulting from product obsolescence, damage or other issues
affecting marketability, equal to the difference between the cost of the
inventory and its estimated market value.  Factors utilized in the
determination of estimated market value include (i) current sales data and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration dates,
and (vi) component and packaging obsolescence.




F-7


Property
      and Equipment


Property
and equipment are stated at cost and are depreciated using the straight-line
method based on the following estimated useful lives:




YearsMachinery
            5Computer
      equipment
            3Furniture
      and fixtures
            7Leasehold
      improvements
            5





Expenditures
for maintenance and repairs are charged to expense as incurred.  When
an asset is sold or otherwise disposed of, the cost and associated accumulated
depreciation are removed from the accounts and the resulting gain or loss is
recognized in the consolidated statement of operations.




Property
and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable.  An impairment loss is recognized if the carrying amount
of the asset exceeds its fair value.




Goodwill


The
excess of the purchase price over the fair market value of assets acquired and
liabilities assumed in purchase business combinations is classified as
goodwill.  In accordance with Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards (“Statement”) No. 142,
“Goodwill and Other Intangible Assets,” the Company does not amortize goodwill,
but performs impairment tests of the carrying value at least
annually.  The Company tests goodwill for impairment at the “brand”
level which is one level below the operating segment level.





Intangible
      Assets


Intangible
assets, which are composed primarily of trademarks, are stated at cost less
accumulated amortization.  For intangible assets with finite lives,
amortization is computed on the straight-line method over estimated useful lives
ranging from five to 30 years.





Indefinite
lived intangible assets are tested for impairment at least annually, while
intangible assets with finite lives are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.  An impairment loss is recognized if the carrying
amount of the asset exceeds its fair value.





Deferred
Financing Costs


The
Company has incurred debt origination costs in connection with the issuance of
long-term debt.  These costs are capitalized as deferred financing
costs and amortized using the straight-line method, which approximates the
effective interest method, over the term of the related debt.





Revenue
      Recognition


Revenues
are recognized in accordance with Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin 104, “Revenue Recognition,” when the following
criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the
product has been shipped and the customer takes ownership and assumes risk of
loss; (iii) the selling price is fixed or determinable; and (iv) collection of
the resulting receivable is reasonably assured.  The Company has
determined that the transfer of risk of loss generally occurs when product is
received by the customer and, accordingly, recognizes revenue at that
time.  Provision is made for estimated discounts related to customer
payment terms and estimated product returns at the time of sale based on the
Company’s historical experience.





As is customary in the
consumer products industry,the Company
participatesin the
promotional programs of its customers to enhance the sale of its
products.The cost of these promotional programs varies based
on the actual number of units sold during a finite period of time.The
Company estimates the cost of such promotional programs at their inception based
on historical experience and current market conditions and reduces sales by such
estimates.These promotional programs
consist of direct to consumer incentives such ascoupons and temporary
price reductions, as well as incentives to the Company’s customers, such as
slotting fees and cooperative advertising.  Estimates of the costs of
these promotional programs are based on (i) historical sales




F-8


experience,
(ii) the current offering, (iii) forecasted data, (iv) current market
conditions, and (v) communication with customer purchasing/marketing
personnel.  At the completion of the promotional program, the
estimated amounts are adjusted to actual results.





Due to
the nature of the consumer products industry, the Company is required to
estimate future product returns.  Accordingly, the Company records an
estimate of product returns concurrent with recording sales which is made after
analyzing (i) historical return rates, (ii) current economic trends, (iii)
changes in customer demand, (iv) product acceptance, (v) seasonality of the
Company’s product offerings, and (vi) the impact of changes in product
formulation, packaging and advertising.





Costs
      of Sales


Costs of
sales include product costs, warehousing costs, inbound and outbound shipping
costs, and handling and storage costs.  Shipping, warehousing and
handling costs were $24.3 million for each of 2008 and 2007, and $24.5 million
for 2006.





Advertising
      and Promotion Costs


Advertising
and promotion costs are expensed as incurred.  Slotting fees
associated with products are recognized as a reduction of
sales.  Under slotting arrangements, the retailers allow the Company’s
products to be placed on the stores’ shelves in exchange for such
fees.  Direct reimbursements of advertising costs are reflected as a
reduction of advertising costs in the period earned.





Stock-based
      Compensation


During 2006, the Company
adopted FASB, Statement No. 123(R), “Share-Based Payment” (“Statement No.
123(R)”) with the grants of restricted stock and options to purchase common
stock to employees and directors in accordance with the provisions of the
Company’s 2005Long-Term Equity Incentive Plan (“the
Plan”).  Statement No. 123(R) requires the Company to measure the cost
of services to be rendered based on the grant-date fair value of the equity
award.  Compensation expense is to be recognized over the period an
employee is required to provide service in exchange for the award, generally
referred to as the requisite service period.  The Company recorded
stock-based compensation charges of $1.1 million, $655,000 and $383,000 during
2008, 2007 and 2006, respectively.





Income
      Taxes


Income
taxes are recorded in accordance with the provisions of FASB Statement No. 109,
“Accounting for Income Taxes” (“Statement No. 109”).  Pursuant to
Statement No. 109, deferred tax assets and liabilities are determined based on
the differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.  A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.





In June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes--an interpretation of FASB Statement 109” (“FIN 48”), which
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No.
109.  FIN 48 prescribes a recognition threshold and measurement
attributes for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.  As a result,
the Company has applied a more-likely-than-not recognition threshold for all tax
uncertainties.  FIN 48 only allows the recognition of those tax
benefits that have a greater than 50% likelihood of being sustained upon
examination by the various taxing authorities.  The adoption of FIN
48, effective April 1, 2007, did not result in a cumulative effect adjustment to
the opening balance of retained earnings or adjustment to any of the components
of assets, liabilities or equity in the consolidated balance sheet.





The
Company is subject to taxation in the US, various state and foreign
jurisdictions.  The Company remains subject to examination by tax
authorities for years after 2003.





The
Company classifies penalties and interest related to unrecognized tax benefits
as income tax expense in the Statement of Operations.





F-9


Derivative
      Instruments


FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, as amended (“Statement No. 133”), requires companies to recognize
derivative instruments as either assets or liabilities in the consolidated
balance sheet at fair value.  The accounting for changes in the fair
value of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of hedging
relationship.  For those derivative instruments that are designated
and qualify as hedging instruments, a company must designate the hedging
instrument, based upon the exposure being hedged, as a fair value hedge, a cash
flow hedge or a hedge of a net investment in a foreign operation.





The
Company has designated its derivative financial instruments as cash flow hedges
because they hedge exposure to variability in expected future cash flows that
are attributable to interest rate risk.  For these hedges, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and reclassified into
earnings in the same line item associated with the forecasted transaction in the
same period or periods during which the hedged transaction affects
earnings.  Any ineffective portion of the gain or loss on the
derivative instruments is recorded in results of operations
immediately.  Cash flows from these instruments are classified as
operating activities.





Earnings
Per Share


Basic
earnings per share is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reporting period.  Diluted earnings per share is calculated based on
income available to common stockholders and the weighted-average number of
common and potential common shares outstanding during the reporting
period.  Potential common shares, composed of the incremental common
shares issuable upon the exercise of stock options, stock appreciation rights
and unvested restricted shares, are included in the earnings per share
calculation to the extent that they are dilutive.





Fair
Value of Financial Instruments


The
carrying value of cash, accounts receivable and accounts payable at both March
31, 2008 and 2007 approximates fair value due to the short-term nature of these
instruments.  The carrying value of long-term debt at both March 31,
2008 and 2007 approximates fair value based on interest rates for instruments
with similar terms and maturities.





Recently
      Issued Accounting Standards


In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“Statement No. 161”) that requires a company with derivative instruments to
disclose information to enable users of the financial statements to understand
(i) how and why the company uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  Accordingly, Statement No. 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. Statement No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.  The implementation of Statement No. 161 is
not expected to have a material effect on the Company’s consolidated financial
statements.





In
December 2007, the FASB ratified Emerging Issues Task Force 07-01, “Accounting
for Collaborative Arrangements” (“EITF 07-01”).  EITF 07-01 provides
guidance for determining if a collaborative arrangement exists and establishes
procedures for reporting revenues and costs generated from transactions with
third parties, as well as between the parties within the collaborative
arrangement, and provides guidance for financial statement disclosures of
collaborative arrangements.  EITF 07-01 is effective for fiscal years
beginning after December 15, 2008 and is required to be applied retrospectively
to all prior periods where collaborative arrangements existed as of the
effective date.  The Company currently is assessing the impact of EITF
07-01 on its consolidated financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“Statement No. 141(R)”) to improve consistency and comparability
in the accounting and financial reporting of business
combinations.  Accordingly, Statement 141(R) requires the acquiring
entity in a business combination to (i)




F-10


recognize
all assets acquired and liabilities assumed in the transaction, (ii) establishes
acquisition-date fair value as the amount to be ascribed to the acquired assets
and liabilities and (iii) requires certain disclosures to enable users of the
financial statements to evaluate the nature, as well as the financial aspects of
the business combination.  Statement 141(R) is effective for business
combinations consummated by the Company on or after April 1, 2009.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities -Including an amendment
of FASB Statement No. 115” (“Statement No.
159”).  StatementNo. 159 permits
companies to choose to measure certain financial instruments and certain other
items at fair value.  Unrealized gains and losses on items for which
the fair value option has been elected will be recognized in earnings at each
subsequent reporting date.  Statement No. 159 is effective for the
Company’s interim financial statements issued after April 1,
2008.  The implementation of Statement No. 159 is not expected to have
a material effect on the Company’s consolidated financial
statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“Statement No. 157”) to address inconsistencies in the definition and
determination of fair value pursuant to generally accepted accounting principles
(“GAAP”).  Statement No. 157 provides a single definition of fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements in an effort to increase comparability
related to the recognition of market-based assets and liabilities and their
impact on earnings.  Statement No. 157 is effective for the Company’s
interim financial statements issued after April 1, 2008.  However, on
November 14, 2007, the FASB deferred the effective date of Statement No. 157 for
one year for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  The implementation of Statement No. 157 is not
expected to have a material effect on financial assets and liabilities included
in the Company’s consolidated financial statements as fair value is based on
readily available market prices.  The Company is currently evaluating
the impact that the application of Statement No. 157 will have on its
consolidated financial statements as it relates to the non-financial assets and
liabilities.





Management
has reviewed and continues to monitor the actions of the various financial and
regulatory reporting agencies and is currently not aware of any other
pronouncement that could have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.








2.
            Acquisition
      of Businesses





Acquisition
      of Dental Concepts LLC


On
November 8, 2005, the Company acquired all of the ownership interests of Dental
Concepts, a marketer of therapeutic oral care products sold under “The Doctor’s”
brand.  The
Doctor’s product line has been fully integrated into the Company’s
operations and continues to benefit from its business model of outsourced
manufacturing.  The results from operations of Dental Concepts have
been included within the Company’s consolidated financial statements as a
component of the over-the-counter healthcare segment commencing November 8,
2005.





The
purchase price of the ownership interests was approximately $30.2 million (net
of cash acquired of $280,000), including fees and expenses of the acquisition of
$1.3 million.  The Company financed the acquisition price through the
utilization of its senior revolving credit facility in the amount of $30.0
million and cash on hand.





F-11


The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of acquisition, which includes a purchase price
adjustment of $750,000 that was recorded in 2007.





(In
      thousands)Accounts
      receivable
            
            $
            2,774Inventories
            
            
            1,707Prepaid
      expenses and other current assets
            
            
            172Property
      and equipment
            
            
            546Goodwill
            
            
            6,362Intangible
      assets
            
            
            22,395Accounts
      payable and accrued liabilities
            
            
            (3,717
            )$
            30,239





As a
result of the Dental Concepts acquisition, the Company recorded a trademark
valued at $22.4 million with an estimated useful life of 20
years.  Goodwill resulting from this transaction was $6.4 million and
it is estimated that such amount will be fully deductible for income tax
purposes.





Acquisition
of Wartner USA B.V.


On
September 21, 2006, the Company completed the acquisition of the ownership
interests of Wartner USA B.V., the owner of the Wartner brand of
over-the-counter wart treatment products.  The Company expects that
the Wartner brand,
which is the #3 brand in the United States over-the-counter wart treatment
category, will continue to enhance the Company’s leadership in the
category.  Additionally, the Company believes that the brand will
continue to benefit from a targeted advertising and marketing program, as well
as the Company’s business model of outsourcing manufacturing and the elimination
of redundant operations.  The Company also expects to exploit certain
aspects of the Wartner
technology across its other product lines.  The results from
operations of the Wartner brand have been
included within the Company’s consolidated financial statements as a component
of the over-the-counter healthcare segment commencing September 21,
2006.





The
purchase price of the ownership interests was approximately $31.2 million,
including fees and expenses of the acquisition of $216,000 and the assumption of
approximately $5.0 million of contingent payments, with an estimated fair value
of $3.8 million, owed to the former owner of Wartner through
2011.  The Company funded the cash acquisition price from operating
cash flows.





The
following table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of acquisition.





(In
      thousands)Inventory
            
            $
            769Intangible
      assets
            
            
            29,600Goodwill
            
            
            11,746Accrued
      liabilities
            
            
            (3,854
            )Deferred
      tax liabilities
            
            
            (7,000
            )$
            31,261





The
amount allocated to intangible assets of $29.6 million includes $17.8 million
related to the Wartner
brand trademark which the Company estimates to have a useful life of 20 years,
as well as $11.8 million related to a patent estimated to have a useful life of
14 years.  Goodwill resulting from this transaction was $11.7 million,
inclusive of a deferred income tax liability recorded for the difference between
the assigned values of assets acquired and liabilities assumed, and their
respective taxes bases.  It is estimated that of such amount,
approximately $4.7 million will be deductible for income tax
purposes.








F-12


3.
            Accounts
      Receivable





Accounts
receivable consist of the following (in thousands):


March
      312008
            
            
            2007Accounts
      receivable
            
            $
            44,918
            
            
            $
            35,274Other
      receivables
            
            
            1,378
            
            
            
            1,68146,296
            
            
            
            36,955Less
      allowances for discounts, returns and
              uncollectible
      accounts
            
            
            (2,077
            )
            
            
            (1,788
            )$
            44,219
            
            
            $
            35,167








4.
            Inventories





Inventories
consist of the following (in thousands):


March
      312008
            
            
            2007Packaging
      and raw materials
            
            $
            2,463
            
            
            $
            2,842Finished
      goods
            
            
            27,233
            
            
            
            27,331$
            29,696
            
            
            $
            30,173





Inventories
are shown net of allowances for obsolete and slow moving inventory of $1.4
million and $1.8 million at March 31, 2008 and 2007, respectively.







5.
            Property
      and Equipment





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


March
      312008
            
            
            2007Machinery
            
            $
            1,516
            
            
            $
            1,480Computer
      equipment
            
            
            627
            
            
            
            566Furniture
      and fixtures
            
            
            205
            
            
            
            247Leasehold
      improvements
            
            
            344
            
            
            
            3722,692
            
            
            
            2,665Accumulated
      depreciation
            
            
            (1,259
            )
            
            
            (1,216
            )$
            1,433
            
            
            $
            1,449








F-13


6.
            Goodwill





A
reconciliation of the activity affecting goodwill by operating segment is as
follows (in thousands):





Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedBalance
      – March 31, 2006
            
            $
            222,635
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            297,935Additions
            
            
            13,012
            
            
            
            --
            
            
            
            --
            
            
            
            13,012Balance
      – March 31, 2007
            
            
            235,647
            
            
            
            72,549
            
            
            
            2,751
            
            
            
            310,947Acquisition
      purchase price adjustments
            
            
            (2,032
            )
            
            
            --
            
            
            
            --
            
            
            
            (2,032
            )Balance
      – March 31, 2008
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915








7.
            Intangible
      Assets





A
reconciliation of the activity affecting intangible assets is as follows (in
thousands):





Year
      Ended March 31, 2008Indefinite
              Lived
            
            
            Finite
              Lived
            
            
            Non
              CompeteTrademarks
            
            
            Trademarks
            
            
            Agreement
            
            
            TotalsCarrying
      AmountsBalance
      – March 31, 2007
            
            $
            544,963
            
            
            $
            139,470
            
            
            $
            196
            
            
            $
            684,629Additions
            
            
            --
            
            
            
            33
            
            
            
            --
            
            
            
            33Balance
      – March 31, 2008
            
            $
            544,963
            
            
            $
            139,503
            
            
            $
            196
            
            
            $
            684,662Accumulated
      AmortizationBalance
      – March 31, 2007
            
            $
            --
            
            
            $
            27,375
            
            
            $
            97
            
            
            $
            27,472Additions
            
            
            --
            
            
            
            10,463
            
            
            
            44
            
            
            
            10,507Balance
      – March 31, 2008
            
            $
            --
            
            
            $
            37,838
            
            
            $
            141
            
            
            $
            37,979








F-14


Year
      Ended March 31, 2007Indefinite
              Lived
            
            
            Finite
              Lived
            
            
            Non
              CompeteTrademarks
            
            
            Trademarks
            
            
            Agreement
            
            
            TotalsCarrying
      AmountsBalance
      – March 31, 2006
            
            $
            544,963
            
            
            $
            109,870
            
            
            $
            196
            
            
            $
            655,029Additions
            
            
            --
            
            
            
            29,600
            
            
            
            --
            
            
            
            29,600Balance
      – March 31, 2007
            
            $
            544,963
            
            
            $
            139,470
            
            
            $
            196
            
            
            $
            684,629Accumulated
      AmortizationBalance
      – March 31, 2006
            
            $
            --
            
            
            $
            17,779
            
            
            $
            53
            
            
            $
            17,832Additions
            
            
            --
            
            
            
            9,596
            
            
            
            44
            
            
            
            9,640Balance
      – March 31, 2007
            
            $
            --
            
            
            $
            27,375
            
            
            $
            97
            
            
            $
            27,472





During
2006, management determined that declining sales in the Company’s personal care
segment might be indicative of an impairment of the Company’s intangible
assets.  Accordingly, in connection with its annual impairment tests
of goodwill and indefinite-lived intangibles in accordance with Statement No.
142, management also performed an impairment analysis for all of the Company’s
finite-lived intangible assets in accordance with Statement No.
144.  As a result of this analysis, the Company recorded a $7.4
million charge to adjust the carrying amount of certain trademarks related to
the personal care segment to their fair values as determined by use of
discounted cash flow methodologies.  Additionally, the Company
recorded a related impairment charge to goodwill for $1.9 million to adjust the
carrying amount of goodwill to its fair value as determined by use of discounted
cash flow methodologies.





At March
31, 2008, intangible assets are expected to be amortized over a period of five
to 30 years as follows (in thousands):





Year Ending March
      312009
            
            $
            10,5042010
            
            
            9,0892011
            
            
            9,0732012
            
            
            9,0732013
            
            
            9,073Thereafter
            
            
            54,908$
            101,720








8.
            Other
      Accrued Liabilities





Other
accrued liabilities consist of the following (in thousands):





March
      312008
            
            
            2007Accrued
      marketing costs
            
            $
            4,136
            
            
            $
            5,687Accrued
      payroll
            
            
            2,845
            
            
            
            3,721Accrued
      commissions
            
            
            464
            
            
            
            335Other
            
            
            585
            
            
            
            762$
            8,030
            
            
            $
            10,505




F-15


9.
            Long-Term
      Debt





Long-term
debt consists of the following (in thousands):


March
      312008
            
            
            2007Senior
      revolving credit facility (“Revolving Credit Facility”), which expires on
      April 6, 2009 and is available for maximum borrowings of up to $60.0
      million.  The Revolving Credit Facility bears interest at the
      Company’s option at either the prime rate plus a variable margin or LIBOR
      plus a variable margin.  The variable margins range from 0.75%
      to 2.50% and at March 31, 2008, the interest rate on the Revolving Credit
      Facility was 6.25% per annum.  The Company is also required to
      pay a variable commitment fee on the unused portion of the Revolving
      Credit Facility.  At March 31, 2008, the commitment fee was
      0.50% of the unused line.  The Revolving Credit Facility is
      collateralized by substantially all of the Company’s
    assets.
            
            $
            --
            
            
            $
            --Senior
      secured term loan facility (“Tranche B Term Loan Facility”) that bears
      interest at the Company’s option at either the prime rate plus a margin of
      1.25% or LIBOR plus a margin of 2.25%.  At March 31,
      2008, the average interest rate on the Tranche B Term Loan Facility
      was 6.97%.  Principal payments of $887,500 plus accrued interest
      are payable quarterly.  In February 2005, the Tranche B Term
      Loan Facility was amended to increase the additional amount available
      thereunder by $50.0 million to $200.0 million, all of which is available
      at March 31,
      2008.  Current amounts outstanding under the Tranche B
      Term Loan Facility mature on April 6, 2011, while amounts borrowed
      pursuant to the amendment will mature on October 6, 2011.  The
      Tranche B Term Loan Facility is collateralized by substantially all of the
      Company’s assets.
            
            
            285,225
            
            
            
            337,350Senior
      Subordinated Notes that bear interest at 9.25% which is payable on April
      15th
      and October 15th
      of each year.  The Senior Subordinated Notes mature on April 15,
      2012; however, the Company may redeem some or all of the Senior
      Subordinated Notes on or prior to April 15, 2008 at a redemption price
      equal to 100%, plus a make-whole premium, and after April 15, 2008 at
      redemption prices set forth in the indenture governing the Senior
      Subordinated Notes.  The Senior Subordinated Notes are
      unconditionally guaranteed by Prestige Brands Holdings, Inc., and its
      domestic wholly-owned subsidiaries other than Prestige Brands, Inc., the
      issuer.  Each of these guarantees is joint and
      several.  There are no significant restrictions on the ability
      of any of the guarantors to obtain funds from their
      subsidiaries.
            
            
            126,000
            
            
            
            126,000411,225
            
            
            
            463,350Current
      portion of long-term debt
            
            
            (3,550
            )
            
            
            (3,550
            )$
            407,675
            
            
            $
            459,800





The
Revolving Credit Facility and the Tranche B Term Loan Facility (together the
“Senior Credit Facility”) contain various financial covenants, including
provisions that require the Company to maintain certain leverage ratios,
interest coverage ratios and fixed charge coverage ratios.  The Senior
Credit Facility and the Senior




F-16


Subordinated
Notes also contain provisions that restrict the Company from undertaking
specified corporate actions, such as asset dispositions, acquisitions, dividend
payments, repurchase of common shares outstanding, changes of control,
incurrence of indebtedness, creation of liens, making of loans and transactions
with affiliates.  Additionally, the Senior Credit Facility and the
Senior Subordinated Notes contain cross-default provisions whereby a default
pursuant to the terms and conditions of either indebtedness will cause a default
on the remaining indebtedness.  At March 31, 2008, the Company was in
compliance with its applicable financial and other covenants under the Senior
Credit Facility and the Indenture.





Future
principal payments required in accordance with the terms of the Senior Credit
Facility and the Senior Subordinated Notes are as follows (in
thousands):





Year Ending March
      312009
            
            $
            3,5502010
            
            
            3,5502011
            
            
            3,5502012
            
            
            274,5752013
            
            
            126,000$
            411,225








10.
            Hedging
      Transactions and Derivative Financial
  Instruments





As deemed
appropriate, the Company uses derivative financial instruments to mitigate the
impact of changing interest rates associated with its long-term debt
obligations.  While the Company does not enter into derivative
financial instruments for trading purposes, all of these derivatives are
over-the-counter instruments with liquid markets.  The notional, or
contractual, amount of the Company’s derivative financial instruments is used to
measure the amount of interest to be paid or received and does not represent an
exposure to credit risk.





In June
2004, the Company purchased a 5% interest rate cap with a notional amount of
$20.0 million which expired in June 2006.  In March 2005, the Company
purchased interest rate cap agreements with a total notional amount of $180.0
million the terms of which are as follows:





Notional
              Amount
            
            
            Interest
      Rate
              Cap
      Percentage
            
            Expiration
              Date(In
      millions)$
            50.0
            
            
            
            3.25
            %
            May
      31, 200680.0
            
            
            
            3.50
            
            May
      30, 200750.0
            
            
            
            3.75
            
            May
      30, 2008





The
Company is accounting for the interest rate cap agreements as cash flow
hedges.  The fair value of the interest rate cap agreements, which is
included in other long-term assets, was $0.0 and $1.2 million at March 31, 2008 and 2007,
respectively.





In
February 2008, the Company entered into an interest rate swap agreement,
effective March 26, 2008, in the notional amount of $175.0 million, decreasing
to $125.0 million at March 26, 2009.  The Company has agreed to pay a
fixed rate of 2.88% while receiving a variable rate based on
Libor.  The agreement terminates on March 26, 2010.  The
fair value of the interest rate swap agreement, which is included in current
liabilities at March 31, 2008, was $1.5 million.






11.
            Stockholders’
      Equity





The
Company is authorized to issue 250.0 million shares of common stock, $0.01 par
value per share, and 5.0 million shares of preferred stock, $0.01 par value per
share. The Board of Directors may direct the issuance of the undesignated
preferred stock in one or more series and determine preferences, privileges and
restrictions thereof.





F-17


Each
share of common stock has the right to one vote on all matters submitted to a
vote of stockholders.  The holders of common stock are also entitled
to receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to prior rights of holders of all classes of
stock outstanding having priority rights as to dividends.  No
dividends have been declared or paid on the Company’s common stock through March
31, 2008.





On July
29, 2005, each of the Company’s four independent members of the Board of
Directors received an award of 6,222 shares of common stock in accordance with
Company’s directors’ compensation arrangements.  The common stock had
a fair value of $11.25 per share, the closing price of the Company’s common
stock on July 28, 2005.  Of such amount, 1,778 shares represented a
one-time grant of unrestricted shares, while the remaining 4,444 shares
represent restricted shares that vested over the two year period ended July 29,
2007.





On August
4, 2005, the Company named a new President and Chief Operating
Officer.  In connection therewith, the Board of Directors granted this
individual 30,888 shares of restricted common stock with a fair market value of
$12.95 per share, the closing price of the common stock on August 4, 2005, and
options to purchase an additional 61,776 shares of common stock at an exercise
price of $12.95 per share.  During 2007, compensation costs of
$142,000 were reversed upon the departure of this member of
management.





On August
15, 2006, each of two new independent members to the Company’s Board of
Directors received an award of 2,119 unrestricted shares of common stock in
accordance with Company’s directors’ compensation arrangements.  The
common stock had a fair value of $9.44 per share, the closing price of the
Company’s common stock on August 14, 2006.





During
2008, 2007 and 2006, the Company repurchased 4,000, 6,000 and 16,000 shares,
respectively, of restricted common stock from former employees pursuant to the
provisions of the various employee stock purchase agreements at an average
purchase price of $1.70 per share.  Additionally, during 2007, the
Company recovered 30,888 shares of restricted stock upon the departure of a
former member of management.  All of such shares have been recorded as
treasury stock.








12.
            Earnings
      Per Share





The
following table sets forth the computation of basic and diluted earnings per
share (in thousands):





Year
      Ended March 312008
            
            
            2007
            
            
            2006NumeratorNet
      income
            
            $
            33,919
            
            
            $
            36,078
            
            
            $
            26,277DenominatorDenominator
      for basic earnings per share
            
            
            49,751
            
            
            
            49,460
            
            
            
            48,908Dilutive
      effect of unvested restricted common stock and stock appreciation rights
      issued to employees and directors
            
            
            288
            
            
            
            560
            
            
            
            1,100Denominator
      for diluted earnings per share
            
            
            50,039
            
            
            
            50,020
            
            
            
            50,008Earnings
      per Common Share:Basic
            
            $
            0.68
            
            
            $
            0.73
            
            
            $
            0.54Diluted
            
            $
            0.68
            
            
            $
            0.72
            
            
            $
            0.53





At March
31, 2008, 314,000 restricted shares issued to management and employees, subject
only to time-vesting, were unvested and excluded from the calculation of basic
earnings per share; however, such shares were included




F-18


in the
calculation of diluted earnings per share.  Additionally, at March 31,
2008, 324,000 shares of restricted stock granted to management and employees, as
well as 16,000 stock appreciation rights have been excluded from the calculation
of both basic and diluted earnings per share since vesting of such shares is
subject to contingencies.  Lastly, at March 31, 2008, there were
options to purchase 254,000 shares of common stock outstanding that were not
included in the computation of diluted earnings per share because their exercise
price was greater than the average market price of the common stock, and
therefore, their inclusion would be antidilutive.





At March
31, 2007, 373,000 restricted shares issued to management and employees, subject
only to time-vesting, were unvested and excluded from the calculation of basic
earnings per share; however, such shares were included in the calculation of
diluted earnings per share.  Additionally, at March 31, 2007, 254,000
shares of restricted stock granted to management and employees, as well as
16,000 stock appreciation rights have been excluded from the calculation of both
basic and diluted earnings per share since vesting of such shares is subject to
contingencies.  There were no stock options outstanding at March 31,
2007.





At March
31, 2006, 734,000 restricted shares issued to management and employees, subject
only to time-vesting, were unvested and excluded from the calculation of basic
earnings per share; however, such shares were included in the calculation of
diluted earnings per share.  Additionally, at March 31, 2006, 180,000
shares of restricted stock granted to management and employees have been
excluded from the calculation of both basic and diluted earnings per share since
vesting of such shares is subject to contingencies.  Outstanding
employee stock options to purchase an aggregate of 61,800 shares of common stock
at March 31, 2006 were not included in the computation of diluted earnings per
share because their exercise price was greater than the average market price of
the common stock, and therefore, their inclusion would be
antidilutive.








13.
            Share-Based
      Compensation





In
connection with the Company’s initial public offering, the Board of Directors
adopted the 2005 Long-Term Equity Incentive Plan (“Plan”) which provides for the
grant, to a maximum of 5.0 million shares, of stock options, restricted stock
units, deferred stock units and other equity-based awards.  Directors,
officers and other employees of the Company and its subsidiaries, as well as
others performing services for the Company, are eligible for grants under the
Plan.  The Company believes that such awards better align the
interests of its employees with those of its stockholders.





During
2006, the Company adopted Statement No. 123(R) with the initial grants of
restricted stock and options to purchase common stock to employees and directors
in accordance with the provisions of the Plan.  During 2008,
compensation costs charged against income, and the related tax benefits
recognized were $1.1 million and $433,000, respectively.  At December
31, 2007, management determined that the Company would not meet the performance
goals associated with the grants of restricted stock to management and employees
in October 2005 and July 2006.  In accordance with Statement No.
123(R), management reversed previously recorded stock-based compensation costs
of $538,000 and $394,000 related to the October 2005 and July 2006 grants,
respectively.  Additionally, at March 31, 2008, management determined
that the Company would not meet the performance goals associated with the grants
of restricted stock issued to management and employees in May
2007.  Therefore, the Company reversed previously recorded stock-based
compensation costs of $166,000 associated with such
grant.  Compensation costs charged against income, and the related tax
benefits recognized were $655,000 and $253,000, respectively, for 2007 and
$383,000 and $150,000, respectively, for 2006.





Restricted
Shares


Restricted
shares granted to employees under the Plan generally vest in 3 to 5 years,
either contingent on attainment of Company performance goals, including both
revenue and earnings per share growth targets or the attainment of certain time
vesting thresholds.  Certain restricted share awards provide for
accelerated vesting if there is a change of control.  The fair value
of nonvested restricted shares is determined as the closing price of the
Company’s common stock on the day preceding the grant date.  The
weighted-average grant-date fair values during 2008, 2007 and 2006 were $12.52,
$9.83 and $12.29, respectively.





F-19


A summary
of the Company’s restricted shares granted under the Plan is presented
below:





Nonvested
      Shares
            
            Shares
              (000)
            
            
            Weighted-Average
              Grant-Date
              Fair
      ValueGranted
            
            
            211.6
            
            
            $
            12.29Vested
            
            
            (7.1
            )
            
            
            11.25Forfeited
            
            
            (6.5
            )
            
            
            12.32Nonvested
      at March 31, 2006
            
            
            198.0
            
            
            
            12.32Granted
            
            
            156.5
            
            
            
            9.83Vested
            
            
            (13.1
            )
            
            
            10.67Forfeited
            
            
            (47.0
            )
            
            
            12.47Nonvested
      at March 31, 2007
            
            
            294.4
            
            
            
            11.05Granted
            
            
            292.0
            
            
            
            12.52Vested
            
            
            (24.8
            )
            
            
            10.09Forfeited
            
            
            (76.9
            )
            
            
            12.35Nonvested
      at March 31, 2008
            
            
            484.7
            
            
            $
            11.78








Options


The Plan
provides that the exercise price of the option granted shall be no less than the
fair market value of the Company’s common stock on the date the option is
granted.  Options granted have a term of no greater than 10 years from
the date of grant and vest in accordance with a schedule determined at the time
the option is granted, generally 3 to 5 years.  Certain option awards
provide for accelerated vesting if there is a change in control.





The fair
value of each option award is estimated on the date of grant using the
Black-Scholes Option Pricing Model (“Black-Scholes Model”) that uses the
assumptions noted in the following table.  Expected volatilities are
based on the historical volatility of the Company’s common stock and other
factors, including the historical volatilities of comparable
companies.  The Company uses appropriate historical data, as well as
current data, to estimate option exercise and employee termination
behaviors.  Employees that are expected to exhibit similar exercise or
termination behaviors are grouped together for the purposes of
valuation.  The expected terms of the options granted are derived from
management’s estimates and information derived from the public filings of
companies similar to the Company and represent the period of time that options
granted are expected to be outstanding.  The risk-free rate represents
the yield on U.S. Treasury bonds with a maturity equal to the expected term of
the granted option.  The weighted-average grant-date fair value of the
options granted during 2008 and 2006 were $5.30 and $5.02,
respectively.  There were no options granted during 2007.





Year
      Ended March 312008
            
            
            2007
            
            
            2006Expected
      volatility
            
            
            33.2
            %
            
            
            --
            
            
            
            31.0
            %Expected
      dividends
            
            
            --
            
            
            
            --
            
            
            
            --Expected
      term in years
            
            
            6.0
            
            
            
            --
            
            
            
            6.0Risk-free
      rate
            
            
            4.5
            %
            
            
            --
            
            
            
            4.2
            %





F-20


A summary
of option activity under the Plan is as follows:





Options
            
            Shares
              (000)
            
            
            Weighted-Average
              Exercise
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Granted
            
            
            61.8
            
            
            $
            12.95
            
            
            
            5.0
            
            
            $
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2006
            
            
            61.8
            
            
            
            12.95
            
            
            
            4.3
            
            
            
            --Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            (61.8
            )
            
            
            12.95
            
            
            
            4.3
            
            
            
            --Outstanding
      at March 31, 2007
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Granted
            
            
            255.1
            
            
            
            9.97
            
            
            
            10.0
            
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            
            
            
            
            --Forfeited
      or expired
            
            
            (1.6
            )
            
            
            9.97
            
            
            
            9.2
            
            
            
            --Outstanding
      at March 31, 2008
            
            
            253.5
            
            
            $
            9.97
            
            
            
            9.2
            
            
            $
            --Exercisable
      at March 31, 2008
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --





Since the
exercise price of the options exceeded the Company’s closing stock price of
$8.18 at March 31, 2008 and $12.17 at March 31, 2006, the aggregate intrinsic
value of outstanding options was $0 at both March 31, 2008 and
2006.








Stock
Appreciation Rights (“SARS”)


During
2007, the Board of Directors granted SARS to a group of selected executives;
however, there were no SARS granted during 2008.  The terms of the
SARS provide that on the vesting date, the executive will receive the excess of
the market price of the stock award over the market price of the stock award on
the date of issuance.  The Board of Directors, in its sole discretion,
may settle the Company’s obligation to the executive in shares of the Company’s
common stock, cash, other securities of the Company or any combination
thereof.





The Plan
provides that the issuance price of a SAR shall be no less than the market price
of the Company’s common stock on the date the SAR is granted.  SARS
may be granted with a term of no greater than 10 years from the date of grant
and will vest in accordance with a schedule determined at the time the SAR is
granted, generally 3 to 5 years.  The weighted-average grant date fair
value of the SARS granted during 2007 was $3.68.  The fair value of
each SAR award was estimated on the date of grant using the Black-Scholes Model
using the assumptions noted in the following table.





Year
      Ended March 31, 2007Expected
      volatility
            
            
            50.0
            %Expected
      dividends
            
            
            --Expected
      term in years
            
            
            2.75Risk-free
      rate
            
            
            5.0
            %





F-21


A summary
of SARS activity under the Plan is as follows:





SARS
            
            Shares
              (000)
            
            
            Grant
              Date
              Stock
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
            
            
            Aggregate
              Intrinsic
              Value
              (000)Granted
      – July 1, 2006
            
            
            16.1
            
            
            $
            9.97
            
            
            
            2.0
            
            
            $
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2007
            
            
            16.1
            
            
            
            9.97
            
            
            
            2.0
            
            
            
            30,300Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
      or expired
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding
      at March 31, 2008
            
            
            16.1
            
            
            
            9.97
            
            
            
            1.0
            
            
            $
            --Exercisable
      at March 31, 2008
            
            
            --
            
            
            $
            --
            
            
            
            --
            
            
            $
            --





Since the
exercise price of the SARS exceeded the closing market price of the Company’s
common stock on March 31, 2008, the aggregate intrinsic value of the outstanding
SARS was $0 at March 31, 2008.  However, since the closing market
price of the Company’s common stock on March 31, 2007 of $11.85 exceeded the
market price of the Company’s stock on the grant date, the aggregate intrinsic
value of outstanding SARS was $30,300 at March 31, 2007.





At March
31, 2008, 2007 and 2006, there were $2.6 million, $1.4 million and $1.2 million,
respectively, of unrecognized compensation costs related to nonvested
share-based compensation arrangements under the Plan based on management’s
estimate of the shares that will ultimately vest.  The Company expects
to recognize such costs over the next 2.5 years.  However, certain of
the restricted shares vest upon the attainment of Company performance goals and
if such goals are not met, no compensation costs would ultimately be recognized
and any previously recognized compensation cost would be
reversed.  The total fair value of shares vested during 2008, 2007 and
2006 was $277,000, $104,000 and $80,000, respectively.  There were no
options exercised during 2008, 2007 or 2006; hence there were no tax benefits
realized during these periods.  At March 31, 2008, there were 4.2
million shares available for issuance under the Plan.








14.
            Income
      Taxes





The
provision (benefit) for income taxes consists of the following (in
thousands):





Year
      Ended March 312008
            
            
            2007
            
            
            2006CurrentFederal
            
            $
            8,599
            
            
            $
            7,547
            
            
            $
            5,043State
            
            
            1,208
            
            
            
            1,739
            
            
            
            1,056Foreign
            
            
            386
            
            
            
            150
            
            
            
            206DeferredFederal
            
            
            8,851
            
            
            
            10,391
            
            
            
            10,621State
            
            
            1,245
            
            
            
            (729
            )
            
            
            4,355$
            20,289
            
            
            $
            19,098
            
            
            $
            21,281





F-22


The
principal components of the Company’s deferred tax balances are as follows (in
thousands):





March
      312008
            
            
            2007Deferred
      Tax AssetsAllowance
      for doubtful accounts and sales returns
            
            $
            966
            
            
            $
            982Inventory
      capitalization
            
            
            538
            
            
            
            420Inventory
      reserves
            
            
            577
            
            
            
            731Net
      operating loss carryforwards
            
            
            951
            
            
            
            1,052Property
      and equipment
            
            
            78
            
            
            
            95State
      income taxes
            
            
            4,951
            
            
            
            4,545Accrued
      liabilities
            
            
            364
            
            
            
            286Interest
      rate caps
            
            
            612
            
            
            
            --Other
            
            
            669
            
            
            
            347Deferred
      Tax LiabilitiesIntangible
      assets
            
            
            (128,781
            )
            
            
            (120,096
            )Interest
      rate caps
            
            
            --
            
            
            
            (198
            )$
            (119,075
            )
            
            $
            (111,836
            )





At March
31, 2008, Medtech Products Inc., a wholly-owned subsidiary of the Company, had a
net operating loss carryforward of approximately $2.4 million which may be used
to offset future taxable income of the consolidated group and begins to expire
in 2020.  The net operating loss carryforward is subject to an annual
limitation as to usage under Internal Revenue Code Section 382 of approximately
$240,000.





A
reconciliation of the effective tax rate compared to the statutory U.S. Federal
tax rate is as follows:





Year
      Ended March 31(In
      thousands)
            
            2008
            
            
            2007
            
            
            2006%
            
            
            
            
            
            %
            
            
            
            
            
            %Income
      tax provision at statutory rate
            
            $
            18,973
            
            
            
            35.0
            
            
            $
            19,312
            
            
            
            35.0
            
            
            $
            16,645
            
            
            
            35.0Foreign
      tax provision
            
            
            16
            
            
            
            --
            
            
            
            (69
            )
            
            
            (0.1
            )
            
            
            59
            
            
            
            0.1State
      income taxes, net of federal income tax benefit
            
            
            1,284
            
            
            
            2.4
            
            
            
            2,029
            
            
            
            3.7
            
            
            
            2,096
            
            
            
            4.4Increase
      (decrease) in net deferred tax liability resulting from an increase
      (decrease) in the effective state tax rate
            
            
            --
            
            
            
            --
            
            
            
            (2,200
            )
            
            
            (4.0
            )
            
            
            2,019
            
            
            
            4.2Goodwill
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            461
            
            
            
            1.0Other
            
            
            16
            
            
            
            --
            
            
            
            26
            
            
            
            --
            
            
            
            1
            
            
            
            --Provision
      for income taxes
            
            $
            20,289
            
            
            
            37.4
            
            
            $
            19,098
            
            
            
            34.6
            
            
            $
            21,281
            
            
            
            44.7








15.
            Commitments
      and Contingencies





Securities Class Action
Litigation


The
Company and certain of its officers and directors are defendants in a
consolidated securities class action lawsuit filed in the United States District
Court for the Southern District of New York (the “Consolidated
Action”).  The first of the six consolidated cases was filed on August
3, 2005.  Plaintiffs purport to represent a class of stockholders of
the Company who purchased shares between February 9, 2005 through November 15,
2005.  Plaintiffs also name as defendants the underwriters in the
Company’s initial public offering and a private equity fund that was a selling
stockholder in the offering.  The District Court has appointed a Lead
Plaintiff.  On December 23, 2005, the Lead Plaintiff filed a
Consolidated Class Action Complaint, which asserted claims under




F-23


Sections
11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b), 20(a) and
20A of the Securities Exchange Act of 1934.  The Lead Plaintiff
generally alleged that the Company issued a series of materially false and
misleading statements in connection with its initial public offering and
thereafter in regard to the following areas: the accounting issues described in
the Company’s press release issued on or about November 15, 2005; and the
alleged failure to disclose that demand for certain of the Company’s products
was declining and that the Company was planning to withdraw several products
from the market.  Plaintiffs seek an unspecified amount of
damages.  The Company filed a motion to dismiss the Consolidated Class
Action Complaint in February 2006.  On July 10, 2006, the Court
dismissed all claims against the Company and the individual defendants arising
under the Securities Exchange Act of 1934.





On June
1, 2007, a hearing before the Court was held regarding Plaintiffs’ pending
motion for class certification in the Consolidated Action.  On
September 4, 2007, the United States District Court for the Southern District of
New York issued an Order certifying a class consisting of all persons who
purchased the common stock of the Company pursuant to, or traceable to, the
Company’s initial public offering on or about February 9, 2005 through November
15, 2005 and were damaged thereby.





On
January 8, 2008, the parties to the action engaged in mediation to explore the
terms of a potential settlement of the pending litigation; however, no
settlement agreement was reached during mediation.  A status
conference was held on February 8, 2008 and another status conference is
scheduled to be held on July 31, 2008.  While discovery in the action
has commenced and is continuing, the Company’s management continues to believe
that the remaining claims in the case are legally deficient and that it has
meritorious defenses to the claims that remain.  The Company intends
to vigorously defend against the claims remaining in the case; however, the
Company cannot, at this time, reasonably estimate the potential range of loss,
if any.





OraSure Technologies
Arbitration


On
September 28, 2006, OraSure Technologies, Inc. (“OraSure”) moved in the Supreme
Court of the State of New York for a preliminary injunction prohibiting the
Company from selling cryogenic wart removal products under the Wartner brand, which the
Company acquired on September 21, 2006.  OraSure was a supplier to the
Company for the Company’sCompound WFreeze Off business.  The distribution agreement
between the parties provides for mediation of contract disputes, followed by
arbitration, if necessary.  The contract in question had a term ending
in December 2007.  On October 30, 2006, the Court denied OraSure’s
motion for a preliminary injunction.  Subsequently, in a decision and
order dated December 20, 2006, the Court denied a motion by OraSure for a
rehearing regarding a preliminary injunction.  An appeal was filed by
OraSure in the Appellate Division of the Supreme Court of the State of New York
on January 29, 2007, and the Company filed a brief with the Court on February
28, 2007.  On May 17, 2007, the Appellate Division reversed the
decision of the Supreme Court of the State of New York and issued a preliminary
injunction prohibiting the marketing and selling of the Wartner brand by the Company
until the underlying arbitration with OraSure was concluded.  On May
21, 2007, the Company requested that the Appellate Division issue a stay of the
preliminary injunction, consider reargument of the Appellate Division’s decision
and grant a leave to appeal to the Court of Appeals of the State of New
York.  In response to the Company’s request for a stay of the
preliminary injunction, the Appellate Division issued a stay of the preliminary
injunction pending the Appellate Division’s consideration of the Company’s
motion to reargue and request for leave to appeal to the Court of
Appeals.





On July
12, 2007, the Appellate Division of the Supreme Court of the State of New York
issued an Order affirming the Order of the Supreme Court of the State of New
York which denied OraSure’s petition for a preliminary injunction that would
have prohibited the Company from selling cryogenic wart removal products under
the Wartner brand.  In addition, the Appellate Division dismissed
OraSure’s appeal from the Supreme Court’s Order which denied OraSure’s motion
for reargument.  Based on the foregoing, the Appellate Division held
that a preliminary injunction was not an appropriate remedy in the action and
recalled and vacated its Order dated May 17, 2007, which granted a preliminary
injunction.





At the
end of August 2007, the Company and OraSure participated in an arbitration
hearing at which each party presented its case to the arbitration
panel.  On October 22, 2007, the Company received notification from
the arbitrators that they had issued a Partial Final Award (the “Award”) in the
pending arbitration with OraSure.  The arbitrators acknowledged that
there was a technical breach of the non-compete clause in the Distribution
Agreement between the parties but OraSure’s proof of damages was speculative and
not supported by credible




F-24


evidence.  Therefore,
the arbitrators awarded nominal damages to OraSure in the amount of One Dollar
($1.00).  In addition, the arbitrators awarded to OraSure counsel fees
and arbitrator compensation in an amount to be determined pursuant to further
proceedings.





The
arbitration panel also dismissed with prejudice OraSure’s remaining claims for
breach of the Distribution Agreement, OraSure’s request for injunctive relief
and the Company’s counterclaims, respectively.  Furthermore, the
arbitrators confirmed the Company's position that the Distribution Agreement
will terminate on December 31, 2007.





On
December 18, 2007, the arbitration panel concluded the arbitration by issuing a
Final Award for certain counsel fees and arbitrator compensation to be paid by
the Company.  Pursuant to the Final Award, the Company has made
payment to OraSure in an amount that did not have a material impact on the
Company’s results from operations for the year ended March 31,
2008.





DenTek
      Litigation


In April
2007, the Company filed a lawsuit in the U.S. District Court in the Southern
District of New York against DenTek Oral Care, Inc. (“DenTek”) alleging (i)
infringement of intellectual property associated with The Doctor’s NightGuardDental
Protector which is used for the protection of teeth from nighttime teeth
grinding; and (ii) the violation of unfair competition and consumer protection
laws.  On October 4, 2007, the Company filed a Second Amended
Complaint in which it named Kelly M. Kaplan, Raymond Duane and C.D.S.
Associates, Inc. as additional defendants in the action against DenTek and added
other claims to the previously filed complaint.  Ms. Kaplan and Mr.
Duane were formerly employed by the Company and C.D.S. Associates, Inc. is a
corporation controlled by Mr. Duane.  In the Second Amended Complaint,
the Company has alleged patent, trademark and copyright infringement, unfair
competition, unjust enrichment, violation of New York’s Consumer Protection Act,
breach of contract, tortuous interference with contractual and business
relations, civil conspiracy and trade secret misappropriation.  On
October 19, 2007, the Company filed a motion for preliminary injunction with the
Court in which the Company has asked the Court to enjoin the defendants from (i)
continuing to improperly use the Company’s trade secrets; (ii) continuing to
breach any contractual agreements with the Company; and (iii) marketing and
selling any dental protector products or other products in which Ray Duane or
Kelly Kaplan has had any involvement or provided any assistance to
DenTek.  A hearing date for the motion for preliminary injunction has
not yet been set by the Court.  Discovery requests have been served by
the parties and discovery is ongoing.





In
November 2007, the defendants in the action each filed a motion to dismiss which
is pending before the Court.  The Company has filed responses to the
motions to dismiss and is awaiting a decision by the Court regarding such
motions.  The Court has ordered the Company’s motion for a preliminary
injunction to be held in abeyance pending a determination of the motions to
dismiss.  A hearing before the Court was held on February 14, 2008
regarding pending procedural motions and discovery and another hearing is
scheduled to be held on June 23, 2008 regarding such motions and ongoing
discovery.  The parties are also scheduled to appear in Court on July
25, 2008 for a status conference.





In
addition to the matters described above, the Company is involved from time to
time in other routine legal matters and other claims incidental to its
business.  The Company reviews outstanding claims and proceedings
internally and with external counsel as necessary to assess probability and
amount of potential loss.  These assessments are re-evaluated at each
reporting period and as new information becomes available to determine whether a
reserve should be established or if any existing reserve should be
adjusted.  The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded
reserve.  In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).  The Company
believes the resolution of routine matters and other incidental claims, taking
into account reserves and insurance, will not have a material adverse effect on
its business, financial condition, results from operations or cash
flows.







F-25


Lease
Commitments
 The
Company has operating leases for office facilities and equipment in New York,
New Jersey and Wyoming, which
expire at various dates through 2014.





The
following summarizes future minimum lease payments for the Company’s operating
leases (in thousands):




Facilities
            
            
            Equipment
            
            
            TotalYear Ending March
      31,2009
            
            $
            618
            
            
            $
            102
            
            
            $
            7202010
            
            
            558
            
            
            
            82
            
            
            
            6402011
            
            
            543
            
            
            
            53
            
            
            
            5962012
            
            
            559
            
            
            
            34
            
            
            
            593Thereafter
            
            
            1,223
            
            
            
            --
            
            
            
            1,223$
            3,501
            
            
            $
            271
            
            
            $
            3,772





Rent
expense for 2008, 2007 and 2006 was $597,000, $565,000 and $584,000,
respectively.








16.
            Concentrations
      of Risk





The
Company’s sales are concentrated in the areas of over-the-counter healthcare,
household cleaning and personal care products.  The Company sells its
products to mass merchandisers, food and drug accounts, and dollar and club
stores.  During 2008, 2007 and 2006, approximately 58%, 57%, and 61%,
respectively, of the Company’s total sales were derived from its four major
brands.  During 2008, 2007 and 2006, approximately 23%, 24% and 21%,
respectively, of the Company’s net sales were made to one
customer.  At March 31, 2008, approximately 16% of accounts receivable
were owed by the same customer.





The
Company manages product distribution in the continental United States through a
main distribution center in St. Louis, Missouri.  A serious
disruption, such as a flood or fire, to the main distribution center could
damage the Company’s inventories and could materially impair the Company’s
ability to distribute its products to customers in a timely manner or at a
reasonable cost.  The Company could incur significantly higher costs
and experience longer lead times associated with the distribution of its
products to its customers during the time that it takes the Company to reopen or
replace its distribution center.  As a result, any such disruption
could have a material adverse affect on the Company’s sales and
profitability.





The
Company has relationships with over 40 third-party
manufacturers.  Of those, the top 10 manufacturers produced items that
accounted for approximately 80% of the Company’s gross sales for
2008.  The Company does not have long-term contracts with 4 of these
manufacturers and certain manufacturers of various smaller brands, which
collectively, represented approximately 23% of the Company’s gross sales for
2008.  The lack of manufacturing agreements for these products exposes
the Company to the risk that a manufacturer could stop producing the Company’s
products at any time, for any reason or fail to provide the Company with the
level of products the Company needs to meet its customers’
demands.  Without adequate supplies of merchandise to sell to the
Company’s customers, sales would decrease materially and the Company’s business
would suffer.




F-26


17.
            Business
      Segments





Segment
information has been prepared in accordance with FASB Statement No. 131,
“Disclosures about Segments of an Enterprise and Related
Information.”  The Company’s operating and reportable segments consist
of (i) Over-the-Counter Healthcare, (ii) Household Cleaning and (iii) Personal
Care.





There
were no inter-segment sales or transfers during any of the periods
presented.  The Company evaluates the performance of its operating
segments and allocates resources to them based primarily on contribution
margin.  The table below summarizes information about the Company’s
operating and reportable segments (in thousands).





Year
      Ended March 31, 2008Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            Consolidated(In
      Thousands)Net
      sales
            
            $
            183,641
            
            
            $
            119,224
            
            
            $
            21,756
            
            
            $
            324,621Other
      revenues
            
            
            51
            
            
            
            1,903
            
            
            
            28
            
            
            
            1,982Total
      revenues
            
            
            183,692
            
            
            
            121,127
            
            
            
            21,784
            
            
            
            326,603Cost
      of sales
            
            
            69,344
            
            
            
            75,459
            
            
            
            13,293
            
            
            
            158,096Gross
      profit
            
            
            114,348
            
            
            
            45,668
            
            
            
            8,491
            
            
            
            168,507Advertising
      and promotion
            
            
            26,188
            
            
            
            7,483
            
            
            
            994
            
            
            
            34,665Contribution
      margin
            
            $
            88,160
            
            
            $
            38,185
            
            
            $
            7,497
            
            
            
            133,842Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            42,428Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            91,414Other
      expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            37,206Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,289Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            33,919





Year
      Ended March 31, 2007Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            Consolidated(In
      Thousands)Net
      sales
            
            $
            174,704
            
            
            $
            117,249
            
            
            $
            24,894
            
            
            $
            316,847Other
      revenues
            
            
            --
            
            
            
            1,787
            
            
            
            --
            
            
            
            1,787Total
      revenues
            
            
            174,704
            
            
            
            119,036
            
            
            
            24,894
            
            
            
            318,634Cost
      of sales
            
            
            65,601
            
            
            
            73,002
            
            
            
            14,544
            
            
            
            153,147Gross
      profit
            
            
            109,103
            
            
            
            46,034
            
            
            
            10,350
            
            
            
            165,487Advertising
      and promotion
            
            
            24,201
            
            
            
            6,679
            
            
            
            1,125
            
            
            
            32,005Contribution
      margin
            
            $
            84,902
            
            
            $
            39,355
            
            
            $
            9,225
            
            
            
            133,482Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            38,800Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            94,682Other
      expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            39,506Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,098Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            36,078





F-27


Year
      Ended March 31, 2006Over-the-
              Counter
            
            
            Household
            
            
            PersonalHealthcare
            
            
            Cleaning
            
            
            Care
            
            
            Consolidated(In
      Thousands)Net
      sales
            
            $
            160,942
            
            
            $
            107,372
            
            
            $
            27,925
            
            
            $
            296,239Other
      revenues
            
            
            --
            
            
            
            429
            
            
            
            --
            
            
            
            429Total
      revenues
            
            
            160,942
            
            
            
            107,801
            
            
            
            27,925
            
            
            
            296,668Cost
      of sales
            
            
            58,491
            
            
            
            65,088
            
            
            
            15,851
            
            
            
            139,430Gross
      profit
            
            
            102,451
            
            
            
            42,713
            
            
            
            12,074
            
            
            
            157,238Advertising
      and promotion
            
            
            22,424
            
            
            
            6,495
            
            
            
            3,163
            
            
            
            32,082Contribution
      margin
            
            $
            80,027
            
            
            $
            36,218
            
            
            $
            8,911
            
            
            
            125,156Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            41,252Operating
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            83,904Other
      expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            36,346Provision
      for income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            21,281Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            26,277





During
2008, approximately 96% of the Company’s sales were made to customers in the
United States and Canada, while during 2007 and 2006, approximately 95% and 97%,
respectively, of the Company’s sales were made to customers in the United States
and Canada.  Other than the United States, no individual geographical
area accounted for more than 10% of net sales in any of the periods
presented.  At March 31, 2008, substantially all of the Company’s
long-term assets were located in the United States of America and have been
allocated to the operating segments as follows:





Over-the-
              Counter
            
            
            Household
            
            
            Personal(In
      Thousands)
            
            Healthcare
            
            
            Cleaning
            
            
            Care
            
            
            ConsolidatedGoodwill
            
            $
            233,615
            
            
            $
            72,549
            
            
            $
            2,751
            
            
            $
            308,915Intangible
      assetsIndefinite
      lived
            
            
            374,070
            
            
            
            170,893
            
            
            
            --
            
            
            
            544,963Finite
      lived
            
            
            87,230
            
            
            
            9
            
            
            
            14,481
            
            
            
            101,720461,300
            
            
            
            170,902
            
            
            
            14,481
            
            
            
            646,683$
            694,915
            
            
            $
            243,451
            
            
            $
            17,232
            
            
            $
            955,598








F-28


18.
            Unaudited
      Quarterly Financial Information





Unaudited
quarterly financial information for 2008 and 2007 is as follows:





Year
Ended March 31, 2008


Quarterly
      Period Ended(In
      thousands, except for
              per
      share data)
            
            June
      30,
              2007
            
            
            September
      30,
              2007
            
            
            December
      31,
              2007
            
            
            March
      31,
              2008Total
      revenues
            
            $
            78,611
            
            
            $
            87,337
            
            
            $
            80,222
            
            
            $
            80,433Cost
      of sales
            
            
            37,322
            
            
            
            42,770
            
            
            
            38,783
            
            
            
            39,221Gross
      profit
            
            
            41,289
            
            
            
            44,567
            
            
            
            41,439
            
            
            
            41,212Operating
      expensesAdvertising
      and promotion
            
            
            7,786
            
            
            
            11,017
            
            
            
            9,572
            
            
            
            6,290General
      and administrative
            
            
            7,646
            
            
            
            10,184
            
            
            
            6,209
            
            
            
            7,375Depreciation
      and amortization
            
            
            2,751
            
            
            
            2,756
            
            
            
            2,753
            
            
            
            2,75418,183
            
            
            
            23,957
            
            
            
            18,534
            
            
            
            16,419Operating
      income
            
            
            23,106
            
            
            
            20,610
            
            
            
            22,905
            
            
            
            24,793Net
      interest expense
            
            
            9,687
            
            
            
            9,595
            
            
            
            9,326
            
            
            
            8,598Income
      before income taxes
            
            
            13,419
            
            
            
            11,015
            
            
            
            13,579
            
            
            
            16,195Provision
      for income taxes
            
            
            5,099
            
            
            
            4,186
            
            
            
            5,160
            
            
            
            5,844Net
      income
            
            $
            8,320
            
            
            $
            6,829
            
            
            $
            8,419
            
            
            $
            10,351Net
      income per share:Basic
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.17
            
            
            $
            0.21Diluted
            
            $
            0.17
            
            
            $
            0.14
            
            
            $
            0.17
            
            
            $
            0.21Weighted
      average shares outstanding:Basic
            
            
            49,660
            
            
            
            49,970
            
            
            
            49,799
            
            
            
            49,842Diluted
            
            
            50,038
            
            
            
            50,046
            
            
            
            50,035
            
            
            
            50,037








F-29


Year
Ended March 31, 2007


Quarterly
      Period Ended(In
      thousands, except for
              per
      share data)
            
            June
      30,
              2006
            
            
            September
      30,
              2006
            
            
            December
      31,
              2006
            
            
            March
      31,
              2007Total
      revenues
            
            $
            75,923
            
            
            $
            84,551
            
            
            $
            80,124
            
            
            $
            78,036Cost
      of sales
            
            
            36,325
            
            
            
            41,259
            
            
            
            36,766
            
            
            
            38,797Gross
      profit
            
            
            39,598
            
            
            
            43,292
            
            
            
            43,358
            
            
            
            39,239Operating
      expensesAdvertising
      and promotion
            
            
            7,402
            
            
            
            9,455
            
            
            
            8,952
            
            
            
            6,196General
      and administrative
            
            
            6,434
            
            
            
            7,259
            
            
            
            7,068
            
            
            
            7,655Depreciation
      and amortization
            
            
            2,413
            
            
            
            2,412
            
            
            
            2,804
            
            
            
            2,75516,249
            
            
            
            19,126
            
            
            
            18,824
            
            
            
            16,606Operating
      income
            
            
            23,349
            
            
            
            24,166
            
            
            
            24,534
            
            
            
            22,633Net
      interest expense
            
            
            9,792
            
            
            
            9,743
            
            
            
            10,156
            
            
            
            9,815Income
      before income taxes
            
            
            13,557
            
            
            
            14,423
            
            
            
            14,378
            
            
            
            12,818Provision
      for income taxes
            
            
            5,301
            
            
            
            5,639
            
            
            
            3,735
            
            
            
            4,423Net
      income
            
            $
            8,256
            
            
            $
            8,784
            
            
            $
            10,643
            
            
            $
            8,395Net
      income per share:Basic
            
            $
            0.17
            
            
            $
            0.18
            
            
            $
            0.21
            
            
            $
            0.17Diluted
            
            $
            0.17
            
            
            $
            0.18
            
            
            $
            0.21
            
            
            $
            0.17Weighted
      average shares outstanding:Basic
            
            
            49,372
            
            
            
            49,451
            
            
            
            49,535
            
            
            
            49,607Diluted
            
            
            50,005
            
            
            
            49,994
            
            
            
            50,024
            
            
            
            50,027








F-30


SCHEDULE
      II


VALUATION
AND QUALIFYING ACCOUNTS








(In
      Thousands)
            
            Balance
      at
              Beginning
      of
              Year
            
            
            Amounts
              Charged
      to
              Expense
            
            
            
            Deductions
            
            
            Other
            
            
            
            
            Balance
      at
              End
      of
              YearYear
      Ended March 31, 2008Reserves
      for sales returns and allowance
            
            $
            1,753
            
            
            $
            18,785
            (1
            )
            
            $
            (18,486
            )
            
            $
            --
            
            
            
            
            $
            2,052Reserves
      for trade promotions
            
            
            2,161
            
            
            
            3,074
            
            
            
            
            (3,368
            )
            
            
            --
            
            
            
            
            
            1,867Reserves
      for consumer coupon redemptions
            
            
            401
            
            
            
            1,926
            
            
            
            
            (2,112
            )
            
            
            --
            
            
            
            
            
            215Allowance
      for doubtful accounts
            
            
            35
            
            
            
            124
            
            
            
            
            (134
            )
            
            
            --
            
            
            
            
            
            25Allowance
      for inventory obsolescence
            
            
            1,854
            
            
            
            1,404
            
            
            
            
            (1,813
            )
            
            
            --
            
            
            
            
            
            1,445Year
      Ended March 31, 2007Reserves
      for sales returns and allowance
            
            $
            1,868
            
            
            $
            12,611
            
            
            
            $
            (12,726
            )
            
            $
            --
            
            
            
            
            $
            1,753Reserves
      for trade promotions
            
            
            1,671
            
            
            
            2,974
            
            
            
            
            (2,484
            )
            
            
            --
            
            
            
            
            
            2,161Reserves
      for consumer coupon redemptions
            
            
            283
            
            
            
            2,674
            
            
            
            
            (2,556
            )
            
            
            --
            
            
            
            
            
            401Allowance
      for doubtful accounts
            
            
            100
            
            
            
            100
            
            
            
            
            (165
            )
            
            
            --
            
            
            
            
            
            35Allowance
      for inventory obsolescence
            
            
            1,019
            
            
            
            3,096
            
            
            
            
            (2,397
            )
            
            
            136
            
            (2
            )
            
            
            1,854Year
      Ended March 31, 2006Reserves
      for sales returns and allowance
            
            $
            1,652
            
            
            $
            13,040
            
            
            
            $
            (13,056
            )
            
            $
            232
            
            (3
            )
            
            $
            1,868Reserves
      for trade promotions
            
            
            1,493
            
            
            
            2,522
            
            
            
            
            (2,481
            )
            
            
            137
            
            (3
            )
            
            
            1,671Reserves
      for consumer coupon redemptions
            
            
            290
            
            
            
            2,680
            
            
            
            
            (2,687
            )
            
            
            --
            
            
            
            
            
            283Allowance
      for doubtful accounts
            
            
            250
            
            
            
            1
            
            
            
            
            (92
            )
            
            
            (59
            )
            (3
            )
            
            
            100Allowance
      for inventory obsolescence
            
            
            1,450
            
            
            
            76
            
            
            
            
            (526
            )
            
            
            19
            
            (2
            )
            
            
            1,019Pecos
      returns reserve
            
            
            242
            
            
            
            --
            
            
            
            
            (242
            )
            
            
            --
            
            
            
            
            
            --





(1)
            The
      Company increased its allowance for sales returns by $2.2
      million as a result of the voluntary withdrawal from the marketplace
      of two medicated pediatric cough and cold products marketed under the
      Little Remedies
      brand.  This action was part of an industry-wide voluntary
      withdrawal of these items pending the final results of an FDA safety and
      efficacy review.





(2)
            As
      a result of the acquisition of Dental Concepts LLC, the Company recorded
      an allowance for inventory obsolescence in purchase
      accounting.





(3)
            As
      a result of the acquisition of Dental Concepts LLC, the Company recorded
      allowance for sales returns, promotional allowances and bad debts in
      purchase accounting.







F-31


EXHIBIT
INDEX





EXHIBIT
NO.     DESCRIPTION





3.1
            Amended
      and Restated Certificate of Incorporation of Prestige Brands
      Holdings, Inc. (filed as Exhibit 3.1 to Prestige Brands
      Holdings, Inc.’s Form S-1/A filed on February 8, 2005).+3.2
            Amended
      and Restated Bylaws of Prestige Brands Holdings, Inc., as
      amended  (filed as Exhibit 3.1 to Prestige Brands Holdings,
      Inc.’s Form 10-Q filed on August 9, 2006).+4.1
            Form of
      stock certificate for common stock (filed as Exhibit 4.1 to Prestige
      Brands Holdings, Inc.’s Form S-1/A filed on January 26,
      2005).+4.2
            Indenture,
      dated April 6, 2004, among Prestige Brands, Inc., each Guarantor
      thereto and U.S. Bank National Association, as Trustee (filed as
      Exhibit 4.1 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
      2004).+4.3
            Form
      of 91⁄4% Senior Subordinated Note due 2012 (contained in Exhibit 4.2 to this
      Annual Report on Form 10-K).+4.4
            Supplemental
      Indenture, dated as of October 6, 2004, among Vetco, Inc., Prestige
      Brands, Inc. and U.S. Bank, National Association (filed as Exhibit 4.1 to
      Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 9,
      2007).+4.5
            Second
      Supplemental Indenture, dated as of December 19, 2006, by and among
      Prestige Brands, Inc., U.S. Bank, National Association, Prestige Brands
      Holdings, Inc., Dental Concepts LLC and Prestige International Holdings,
      LLC (filed as Exhibit 4.2 to Prestige Brands Holdings, Inc.’s Form 10-Q
      filed on February 9, 2007).+10.1
            Credit
      Agreement, dated April 6, 2004, among Prestige Brands, Inc.,
      Prestige Brands International, LLC, the Lenders thereto, the Issuers
      thereto, Citicorp North America, Inc., as Administrative Agent, Bank
      of America, N.A., as Syndication Agent, and Merrill Lynch Capital, a
      division of Merrill Lynch Business Financial Services Inc., as
      Documentation Agent (filed as Exhibit 10.1 to Prestige Brands
      Holdings, Inc.’s Form S-1 filed on July 28, 2004).+10.2
            Form of
      Amendment No. 1 to the Credit Agreement, dated as of April 6,
      2004, among Prestige Brands, Inc., Prestige Brands International,
      LLC, the Lenders thereto, the Issuers thereto, Citicorp North
      America, Inc., as Administrative Agent, Bank of America, N.A., as
      Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch
      Business Financial Services, Inc., as Documentation Agent (filed
      as Exhibit 10.1.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
      February 8, 2005).+10.3
            Pledge
      and Security Agreement, dated April 6, 2004, by Prestige
      Brands, Inc. and each of the Grantors party thereto, in favor of
      Citicorp North America, Inc. as Administrative Agent (filed as
      Exhibit 10.2 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
      28, 2004).+10.4
            Joinder
      Agreement, dated as of December 19, 2006, by Prestige Brands Holdings,
      Inc., Prestige International Holdings, LLC and Dental Concepts LLC in
      favor of Citicorp North America, Inc., as Administrative Agent, to the
      Pledge and Security Agreement, dated as of April 6, 2004, by Prestige
      Brands, Inc. and its subsidiaries and affiliates listed on the signature
      pages thereof in favor of Citicorp North America, Inc., as Administrative
      Agent (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q
      filed on February 9, 2007).+10.5
            Guaranty,
      dated as of April 6, 2004, by Prestige Brands International, LLC and each
      of the other entities listed on the signature pages thereof in favor of
      Citicorp North America, Inc., as Administrative Agent (filed as Exhibit
      10.2 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 9,
      2007).+10.6
            Guaranty
      Supplement, dated as of December 19, 2006, by Prestige Brands Holdings,
      Inc., Prestige International Holdings, LLC and Dental Concepts LLC in
      favor of Citicorp North America, Inc., as Administrative Agent, to the
      Guaranty, dated as of April 6, 2004, among Prestige Brands International,
      LLC and certain subsidiaries and affiliates of Prestige Brands, Inc.
      listed on the signature pages thereof in favor of Citicorp North America,
      Inc., as Administrative Agent (filed as Exhibit 10.3 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on February 9, 2007).+








10.7
            Securityholders
      Agreement, dated February 6, 2004, among Medtech/Denorex, LLC (now
      known as Prestige International Holdings, LLC), GTCR Fund VIII, L.P.,
      GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR Capital
      Partners, L.P., the TCW/Crescent Purchasers and the TCW/Crescent Lenders
      thereto, each Executive thereto and each of the Other Securityholders
      thereto (filed as Exhibit 10.11 to Prestige Brands Holdings, Inc.’s Form
      S-1 filed on July 28, 2004).+10.8
            First
      Amendment and Acknowledgement to Securityholders Agreement, dated
      April 6, 2004, to the Securityholders Agreement, dated
      February 6, 2004, among Medtech/Denorex, LLC (now known as Prestige
      International Holdings, LLC), GTCR Fund VIII, L.P., GTCR
      Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR Capital
      Partners, L.P., the TCW/Crescent Purchasers and the TCW/Crescent Lenders
      thereto, each Executive thereto and each of the Other Securityholders
      thereto (filed as Exhibit 10.12 to Prestige Brands Holdings, Inc.’s Form
      S-1 filed on July 28, 2004).+10.9
            Registration
      Rights Agreement, dated February 6, 2004, among Medtech/Denorex, LLC
      (now known as Prestige International Holdings, LLC), GTCR Fund VIII,
      L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR
      Capital Partners, L.P., the TCW/Crescent Purchasers and the TCW/Crescent
      Lenders thereto, each Executive thereto and each of the Other
      Securityholders thereto (filed as Exhibit 10.13 to Prestige Brands
      Holdings, Inc.’s Form S-1 filed on July 28, 2004).+10.10
            First
      Amendment and Acknowledgement to Registration Rights Agreement, dated
      April 6, 2004, to the Registration Rights Agreement, dated
      February 6, 2004, among Medtech/Denorex, LLC (now known as Prestige
      International Holdings, LLC), GTCR Fund VIII, L.P., GTCR
      Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR Capital
      Partners, L.P., the TCW/Crescent Purchasers and the TCW/Crescent Lenders
      thereto, each Executive thereto and each of the Other Securityholders
      thereto (filed as Exhibit 10.14 to Prestige Brands Holdings, Inc.’s
      Form S-1 filed on July 28, 2004).+10.11
            Omnibus
      Consent and Amendment to Securityholders Agreement, Registration Rights
      Agreement, Senior Management Agreements and Unit Purchase Agreement, dated
      as of July 6, 2004 (filed as Exhibit 10.29.1 to Prestige Brands
      Holdings, Inc.’s Form S-1/A filed on November 12, 2004).+10.12
            Form of
      Exchange Agreement by and among Prestige Brands Holdings, Inc.,
      Prestige International Holdings, LLC and the common
      unit holders listed on the signature pages thereto (filed
      as Exhibit 10.39 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
      January 26, 2005).+10.13
            Employment
      Agreement, dated as of January 19, 2007, by and between Prestige Brands
      Holdings, Inc. and Mark Pettie (filed as Exhibit 10.5 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on February 9, 2007).+@10.14
            Form of
      Amended and Restated Senior Management Agreement, dated as of January 28,
      2005, by and among Prestige International Holdings, LLC, Prestige
      Brands Holdings, Inc., Prestige Brands, Inc., and Peter J.
      Anderson (filed as Exhibit 10.29.7 to Prestige Brands Holdings,
      Inc.’s Form S-1/A filed on January 26, 2005).+@10.15
            Executive
      Employment Agreement, dated as of January 17, 2006, between Prestige
      Brands Holdings, Inc. and Charles N. Jolly (filed as Exhibit 10.35 to
      Prestige Brands Holdings, Inc.’s Form 10-K filed on June 14,
      2006).+@10.16
            Letter
      Agreement between Prestige Brands Holdings, Inc. and James E. Kelly (filed
      as Exhibit 10.17 to Prestige Brands Holdings, Inc.’s Form 10-K filed on
      June 14, 2007).+@10.17
            Executive
      Employment Agreement, dated as of August 21, 2006, between Prestige Brands
      Holdings, Inc. and Jean A. Boyko (filed as Exhibit 10.1 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on November 9, 2006).+@10.18
            Executive
      Employment Agreement, dated as of October 1, 2007, between Prestige Brands
      Holdings, Inc. and John Parkinson (filed as Exhibit 10.3 to Prestige
      Brands Holdings, Inc.’s Form 10-Q filed on February 8,
      2008).+@








10.19
            Form of
      Amended and Restated Senior Management Agreement, dated as of January 28,
      2005, by and among Prestige International Holdings, LLC, Prestige
      Brands Holdings, Inc., Prestige Brands, Inc., and Gerard F.
      Butler (filed as Exhibit 10.29.8 to Prestige Brands Holdings, Inc.’s Form
      S-1/A filed on January 26, 2005).+@10.20
            Letter
      Agreement, dated December 22, 2006, among Prestige Brands Holdings, Inc.,
      Prestige Brands, Inc. and Gerard F. Butler (filed as Exhibit 10.4 to
      Prestige Brands Holdings, Inc.’s Form 10-Q filed on February 9,
      2007).+#10.21
            Form of
      Amended and Restated Senior Management Agreement, dated as of January 28,
      2005, by and among Prestige International Holdings, LLC, Prestige
      Brands Holdings, Inc., Prestige Brands, Inc., and Michael A.
      Fink (filed as Exhibit 10.29.9 to Prestige Brands Holdings, Inc.’s
      Form S-1/A filed on January 26, 2005).+@10.22
            Letter
      Agreement, dated April 13, 2007, by and among Prestige Brands Holdings,
      Inc., Prestige Brands, Inc. and Michael A. Fink ( filed as Exhibit 10.22
      to Prestige Brands Holdings, Inc.’s Form 10-K filed on June 14,
      2007).+#10.23
            Form of
      Amended and Restated Senior Management Agreement, dated as of January 28,
      2005, by and among Prestige International Holdings, LLC, Prestige Brands
      Holdings, Inc., Prestige Brands, Inc., and Charles Shrank (filed
      as Exhibit 10.29.10 to Prestige Brands Holdings, Inc.’s Form S-1/A filed
      on January 26, 2005).+@10.24
            Form of
      Amended and Restated Senior Management Agreement, dated as of January 28,
      2005, by and among Prestige International Holdings, LLC, Prestige Brands
      Holdings, Inc., Prestige Brands, Inc., and Eric M. Millar (filed
      as Exhibit 10.29.11 to Prestige Brands Holdings, Inc.’s Form S-1/A filed
      on January 26, 2005).+@10.25
            Letter
      Agreement, dated as of August 30, 2007, by and among Prestige Brands
      Holdings, Inc., Prestige Brands, Inc. and Eric Millar.*#10.26
            Prestige
      Brands Holdings, Inc. 2005 Long-Term Equity Incentive
      Plan (filed as Exhibit 10.38 to Prestige Brands Holdings, Inc.’s Form
      S-1/A filed on January 26, 2005).+#10.27
            Form
      of Restricted Stock Grant Agreement (filed as Exhibit 10.1 to Prestige
      Brands Holdings, Inc.’s Form 10-Q filed on August 9, 2005).+#10.28
            Form
      of Performance Share Grant Agreement (filed as Exhibit 10.3 to Prestige
      Brands Holdings, Inc.’s Form 10-Q filed on November 9,
      2006).+#10.29
            Form
      of Nonqualified Stock Option Agreement (filed as Exhibit 10.28 to Prestige
      Brands Holdings, Inc.’s Form 10-K filed on June 14, 2007).+#10.30
            Contract
      Manufacturing Agreement, dated February 1, 2001, among The
      Procter & Gamble Manufacturing Company, P&G International
      Operations SA, Prestige Brands International, Inc. and Prestige
      Brands International (Canada) Corp. (filed as Exhibit 10.31 to
      Prestige Brands, Inc.’s Form S-4/A filed on August 4, 2004).+
      †10.31
            Patent
      and Technology License Agreement, dated October 2, 2001, between The
      Procter & Gamble Company and Prestige Brands
      International, Inc. (filed as Exhibit 10.29 to Prestige Brands,
      Inc.’s Form S-4/A filed on August 19, 2004).+ †10.32
            Amendment
      No. 4 and Restatement of Contract Manufacturing Agreement, dated
      May 1, 2002, by and between The Procter & Gamble Company and
      Prestige Brands International, Inc. (filed as Exhibit 10.33 to
      Prestige Brands, Inc.’s Form S-4/A filed on August 4, 2004).+
      †10.33
            Amendment
      No. 1 dated April 30, 2003 to the Patent and Technology License
      Agreement, dated October 2, 2001, between The Procter &
      Gamble Company and Prestige Brands International, Inc. (filed as
      Exhibit 10.30 to Prestige Brands, Inc.’s Form S-4/A filed on August 19,
      2004).+








10.34
            Storage
      and Handling Agreement dated April 13, 2005 by and between
      Warehousing Specialists, Inc. and Prestige Brands, Inc. (filed as
      Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on April
      15, 2005).+10.35
            Transportation
      Management Agreement dated April 13, 2005 by and between Prestige
      Brands, Inc. and Nationwide Logistics, Inc. (filed as Exhibit
      10.2 to Prestige Brands Holdings, Inc.’s Form 8-K filed on April 15,
      2005).+10.36
            Trademark
      License and Option to Purchase Agreement, dated September 8, 2005, by and
      among The Procter & Gamble Company and Prestige Brands Holdings, Inc.
      (filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed
      on September 12, 2005).+10.37
            Exclusive
      Supply Agreement, dated as of September 18, 2006, among Medtech Products
      Inc., Pharmacare Limited, Prestige Brands Holdings, Inc. and Aspen
      Pharmacare Holdings Limited (filed as Exhibit 10.2 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on November 9, 2006).+10.38
            Contract
      Manufacturing Agreement, dated December 21, 2007, between Medtech Products
      Inc. and Pharmaspray B.V. (filed as Exhibit 10.1 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on February 8, 2008).+10.39
            Contract
      Manufacturing Agreement, dated December 21, 2007, between Medtech Products
      Inc. and Pharmaspray B.V. (filed as Exhibit 10.2 to Prestige Brands
      Holdings, Inc.’s Form 10-Q filed on February 8, 2008).+21.1
            Subsidiaries
      of the Registrant.*23.1
            Consent
      of PricewaterhouseCoopers LLP.*31.1
            Certification
      of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant
      to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
            Certification
      of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant
      to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
            Certification
      of Principal Executive Officer of Prestige Brands Holdings, Inc. pursuant
      to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350
      of Chapter 63 of Title 18 of the United States Code, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
            Certification
      of Principal Financial Officer of Prestige Brands Holdings, Inc. pursuant
      to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350
      of Chapter 63 of Title 18 of the United States Code, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.*





*
            Filed
      herewith.





†
            Certain
      confidential portions have been omitted pursuant to a confidential
      treatment request separately filed with the Securities and Exchange
      Commission.+
            Incorporated
      herein by reference.





@
            Represents
      a management contract.#
            Represents
      a compensatory plan.