UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(MARK ONE)

       X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
    --------
                         SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                FOR THE TRANSITION PERIOD FROM _______ TO _______

                         COMMISSION FILE NO. 333-124360

                             DEL LABORATORIES, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                        13-1953103
--------------------------------                       --------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                          Identification No.)

                   726 EAB PLAZA, PO BOX 9357, UNIONDALE, NEW
                      YORK 11553-9357 (Address of principal
                          executive offices) (Zip Code)


       Registrant's telephone number, including area code: (516) 844-2020


                            -------------------------


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

                                        YES  (X)                 NO  ( )

        Indicate by check mark whether the registrant is an accelerated filer
        (as defined in Rule 12b-2 of the Exchange Act).

                                        YES  (  )                 NO  (X)

        The number of shares of Common Stock, $.01 par value, outstanding as of
August 15, 2005 was 4,223,864.




<PAGE>





                     DEL LABORATORIES, INC. AND SUBSIDIARIES

                                      Index



<TABLE>
<CAPTION>

<S>          <C>                                                                       <C>
  Part I.       FINANCIAL INFORMATION
                                                                                                  PAGE
  Item 1.       Financial Statements:

                Consolidated Balance Sheets as of
                    June 30, 2005 (Successor), and December 31, 2004 (Predecessor)                   3

                Consolidated Statements of Operations for the one month ended
                    January 31, 2005 (Predecessor), three and five months ended June 30, 2005
                    (Successor) and three and six months ended June 30, 2004 (Predecessor)           4

                Consolidated Statements of Cash Flows for the one month ended
                    January 31, 2005 (Predecessor), five months ended June 30,
                    2005
                    (Successor) and six months ended June 30, 2004 (Predecessor)                     5

                Notes to Consolidated Financial Statements                                           6

  Item 2.       Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                 30

  Item 3.       Quantitative and Qualitative Disclosures About Market Risks                         46

  Item 4.       Controls and Procedures                                                             46

Part II.      OTHER INFORMATION


  Item 6.       Exhibits and Reports on Form 8-K                                                    47


  SIGNATURES                                                                                        48
</TABLE>




                                      -2-
<PAGE>

<TABLE>
<CAPTION>



                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       JUNE 30, 2005 AND DECEMBER 31, 2004
                                 (In thousands)


                                                                             SUCCESSOR     PREDECESSOR
                                                                              PERIOD         PERIOD
                                                                              ------         ------

                                                                              June 30      December 31
                                                                               2005           2004
                                                                            (UNAUDITED)
        ASSETS

Current assets:
<S>                                                                          <C>          <C>
        Cash and cash equivalents                                            $   6,229    $   3,873
        Accounts receivable, less allowance for doubtful accounts
           of $1,850 in 2005 and $1,726 in 2004                                 90,621       78,977
        Inventories                                                            114,946      111,235
        Income taxes receivable                                                 12,184          177
        Deferred income taxes                                                   26,818        7,224
        Prepaid expenses and other current assets                                4,182        3,508
                                                                             ---------    ---------
                   Total current assets                                        254,980      204,994

Property, plant and equipment, net                                              50,022       46,769
Intangibles arising from acquisition, net                                     261,913        7,085
Goodwill                                                                       132,763        6,282
Other assets                                                                    28,262       13,743
Deferred income taxes                                                            5,889        6,587
                                                                             ---------    ---------
                   Total assets                                              $ 733,829    $ 285,460
                                                                             =========    =========

        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Current portion of long-term debt                                    $   2,176    $     501
        Accounts payable                                                        47,909       50,530
        Accrued liabilities                                                     30,367       19,734
                                                                             ---------    ---------
                   Total current liabilities                                    80,452       70,765

Long-term pension liability, less current portion                               22,143       12,273
Deferred income taxes                                                          124,525        7,836
Deferred liability                                                                --          1,405
8% senior subordinated notes, net of unamortized discount of $1,100            173,900         --
Long-term debt, less current portion                                           203,307       71,233
                                                                             ---------    ---------
                   Total liabilities                                           604,327      163,512
                                                                             ---------    ---------

Shareholders' equity:
        Preferred stock $ .01 par value, authorized
           1,000,000 shares; no shares issued (Predecessor)                       --           --
        Common stock $1 par value, authorized 20,000,000
           shares; issued 10,000,000 shares (Predecessor)                         --         10,000
        Common stock $.01 par value, 4,223,864 shares authorized
           and issued (Successor)                                                   42         --
        Additional paid-in capital                                             142,659        9,348
        Accumulated other comprehensive income (loss)                              137       (2,363)
        Retained earnings (deficit)                                            (13,336)     110,918
                                                                             ---------    ---------
                                                                               129,502      127,903

        Less: Treasury stock at cost, 242,553 shares in 2004 (Predecessor)        --         (5,453)
                   Receivables for stock options exercised (Predecessor)          --           (502)
                                                                             ---------    ---------
                   Total shareholders' equity                                  129,502      121,948
                                                                             ---------    ---------

                   Total liabilities and shareholders' equity                $ 733,829    $ 285,460
                                                                             =========    =========


 The accompanying notes are an integral part of the consolidated financial statements.




                                      -3-


</TABLE>

<PAGE>

<TABLE>
<CAPTION>





                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    SUCCESSOR PERIODS and PREDECESSOR PERIODS
                                 (In thousands)
                                   (UNAUDITED)


                                              THREE MONTHS ENDED               SIX MONTHS ENDED
                                           -----------------------   ------------------------------------

                                           SUCCESSOR   PREDECESSOR   SUCCESSOR          PREDECESSOR
                                             PERIOD       PERIOD       PERIOD             PERIOD
                                           ---------    ---------    ---------     ----------------------

                                            April 1,      April 1,  February 1,    January 1,   January 1,
                                             2005 -        2004 -       2005 -       2005 -        2004 -
                                            June 30,      June 30,     June 30,    January 31,   June 30,
                                              2005         2004        2005          2005          2004
                                              ----         ----        ----          ----          ----

<S>                                         <C>          <C>          <C>          <C>          <C>
Net sales                                   $ 108,904    $ 102,948    $ 179,821    $  18,206    $ 186,013

Cost of goods sold                             64,495       52,370      103,225        9,718       93,585
Selling and administrative expenses            44,258       43,049       73,163       11,475       82,729
Severance expenses (note 10)                     --             13         --           --              3
Merger expenses                                   724          216        4,651       18,974          216
                                            ---------    ---------    ---------    ---------    ---------

Operating income (loss)                          (573)       7,300       (1,218)     (21,961)       9,480

Other income (expense):
   Loss on sale of building and land             --            (41)        --            --           (41)
   Interest expense, net                       (6,882)        (836)     (11,732)        (264)      (1,859)
   Other income (expense), net                    (93)        (304)          77         (232)        (354)
                                            ---------    ---------    ---------    ---------    ---------

Earnings (loss) before income taxes            (7,548)       6,119      (12,873)     (22,457)       7,226
Provision for (benefit) from income taxes       2,566        2,362          463      (24,434)       2,789
                                            ---------    ---------    ---------    ---------    ---------
Net earnings (loss)                         $ (10,114)   $   3,757    $ (13,336)   $   1,977    $   4,437
                                            =========    =========    =========    =========    =========



The accompanying notes are an integral part of the consolidated financial statements.


</TABLE>








                                      -4-
<PAGE>

<TABLE>
<CAPTION>




                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SUCCESSOR PERIODS and PREDECESSOR PERIODS
                                 (In thousands)
                                   (UNAUDITED)

                                                                    SUCCESSOR           PREDECESSOR
                                                                     PERIOD                PERIOD
                                                               ----------------- ----------------------------
                                                                                  January 1,      January 1,
                                                               February 1, 2005-    2005 -          2004 -
                                                                 June 30, 2005    January 31,       June 30,
                                                                                     2005             2004
                                                               -----------------     ----             ----
Cash flows provided by (used in) operating activities:
<S>                                                               <C>             <C>             <C>
Net earnings (loss)                                               $ (13,336)      $   1,977       $   4,437
Adjustments to reconcile net earnings (loss) to net cash
  provided by (used in) operating activities:
Depreciation and amortization                                         5,357             748           4,179
Amortization of display fixtures                                      3,702             764           4,291
Amortization of inventory fair value adjustment                       5,579            --              --
Amortization of deferred financing fees and
   original issue discount                                              940              20             111
Deferred income taxes                                                  (837)        (13,030)           --
Provision for (recovery from) doubtful accounts                         100              26              (9)
Tax benefit on stock options exercised                                 --                57             444
Loss on sale of building and land                                      --              --                41
Other non-cash operating items                                          (98)            219             320

Changes in operating assets and liabilities:
    Accounts receivable                                             (17,797)          5,973          (3,163)
    Inventories                                                       4,342          (6,063)         (9,782)
    Prepaid expenses and other current assets                          (298)           (379)            (55)
    Other assets                                                     (5,049)         (1,686)         (5,936)
    Accounts payable                                                 (2,996)            405           2,323
    Accrued liabilities                                             (13,398)         21,720            (881)
    Deferred liability                                                 --             1,367              49
    Pension liability (net)                                             885            (330)            233
    Income taxes receivable / payable                                  (393)        (11,598)         (3,619)
                                                                  ---------       ---------       ---------

          Net cash provided by (used in) operating activities       (33,297)            190          (7,017)
                                                                  ---------       ---------       ---------

Cash flows provided by (used in) investing activities:
    Net proceeds from sale of building and land                        --              --             4,816
    Property, plant and equipment additions                          (2,929)           (797)         (5,387)
    Purchase of Del Laboratories, Inc.                             (377,233)           --              --
                                                                  ---------       ---------       ---------

         Net cash used in investing activities                     (380,162)           (797)           (571)
                                                                  ---------       ---------       ---------

Cash flows provided by (used in) financing activities:
    Borrowing under note payable                                       --              --             5,000
    Principal borrowings (payments) under revolving
       credit agreement, net                                          5,000            (800)          3,000
    Principal payments under mortgages                                  (27)            (23)           (199)
    Principal repayments under term loan                             (1,000)           --              --
    Repayment of existing debt in connection with merger            (69,316)           --              --
    Issuance of senior subordinated notes                           173,845            --              --
    Issuance of term loan                                           200,000            --              --
    Payment of deferred financing and other merger related fees     (29,305)           --              --
    Contributed capital                                             138,200            --              --
    Payment of capital lease obligations                                (59)           --               (55)
    Proceeds from the exercise of stock options                        --                12             201
    Acquisition of treasury stock                                      --               (57)           (429)
                                                                  ---------       ---------       ---------

          Net cash provided by (used in) financing activities       417,338            (868)          7,518
                                                                  ---------       ---------       ---------

Effect of exchange rate changes on cash                                 (27)            (21)            (16)
                                                                  ---------       ---------       ---------

Net increase (decrease) in cash and cash equivalents                  3,852          (1,496)            (86)

Cash and cash equivalents at beginning of year                        2,377           3,873           2,113
                                                                  ---------       ---------       ---------

Cash and cash equivalents at end of period                        $   6,229       $   2,377       $   2,027
                                                                  =========       =========       =========

Supplemental disclosures:
Cash paid for:
    Interest                                                      $   4,212       $     140       $   1,766
    Income taxes                                                  $   1,650       $     136       $   6,152

Non-cash transactions:
    Shares tendered by optionees to exercise
       stock options                                              $    --         $     269       $     780
    Shares exchanged by optionees                                 $   4,500       $    --         $    --


 The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>








                                      -5-
<PAGE>




                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

(1) ORGANIZATION AND OTHER MATTERS

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company ("Kelso"), was merged (the "Merger") with and into
Del Laboratories, Inc., a Delaware corporation ("Del"), pursuant to an Agreement
and Plan of Merger, dated July 1, 2004 (the "Merger Agreement"), by and among
the Sub, Del and DLI Holding Corp., a Delaware corporation ("Holding").
Following the Merger, Del ceased to be a publicly traded company and is now a
wholly-owned subsidiary of DLI Holding II Corp., a Delaware corporation
("Holding II"), which, in turn, is owned by Holding and is an indirect,
wholly-owned subsidiary of DLI Holding LLC, a Delaware limited liability company
affiliated with Kelso ("DLI LLC").

In connection with the Merger, certain investment partnerships affiliated with
Kelso invested approximately $136.0 million in DLI LLC, as a result of which
such entities now own approximately 98.5% of the interests of DLI LLC. Messrs.
Alstodt, Hinkaty and McMenemy, members of Del's senior management prior to and
following the Merger ("Continuing Investors"), invested, in the aggregate,
$60,000 in DLI LLC for approximately 0.1% of the interests in DLI LLC. A third
party investor invested $2,000,000 in DLI LLC for the balance of the interests
in DLI LLC. The foregoing parties entered into a limited liability company
agreement relating to their ownership of interests in DLI LLC.

Pursuant to separate Exchange Agreements, dated January 27, 2005 (the "Exchange
Agreements"), the Continuing Investors elected to exchange, immediately prior to
the effective time of the Merger, options to purchase Del common stock for
options to purchase Holding common stock, constituting approximately 6.6% of the
fully diluted share capital of Holding immediately after the merger. The
estimated fair value of the exchange options was included in the calculation of
the aggregate purchase price.

With the merger completed, William McMenemy was named President and Chief
Executive Officer, Charles J. Hinkaty was named Chief Operating Officer, Harvey
Alstodt was named President of Global Business, and Enzo J. Vialardi remains
Executive Vice President and Chief Financial Officer. With the closing of the
transaction, Dan K. Wassong retired as the Company's Chairman, President and
Chief Executive Officer.

Also following the completion of the Merger, affiliates of Kelso have the right
to designate, directly or indirectly, the board of directors of each of DLI LLC,
Holding, Holding II and Del. Del's board of directors is initially comprised of
Messrs. Alstodt, Hinkaty and McMenemy, members of Del's senior management prior
to and following the Merger, and Messrs. Berney and Moore of Kelso.

In anticipation of the Merger, Sub issued in a private placement offering $175.0
million of 8% Senior Subordinated Notes due 2012. Such notes and all related
obligations were assumed by Del upon the consummation of the Merger. The notes
are guaranteed by certain of the existing domestic subsidiaries of Del.

Immediately prior to the Merger, Sub also entered into a credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, Bear Stearns Corporate
Lending Inc., as syndication agent, Deutsche Bank Securities Inc., as co-agent
and documentation agent, and the lenders party thereto from time to time,
providing for aggregate maximum borrowings of $250.0 million consisting of a
term loan facility in an aggregate principal amount of $200.0 million (all of
which amount was drawn in connection with the Merger,) and a revolving credit
facility, providing for up to $50.0 million of revolving loans outstanding at
any time. The obligations under the credit agreement were assumed by Del upon
the consummation of the Merger. The obligations of Del under the credit
agreement are guaranteed by Holding II and certain of the domestic subsidiaries
of Del. The senior credit facilities and the guarantees thereof are secured by a
pledge of the capital stock of Del by Holding II, pledges of certain of the
capital stock of the domestic subsidiaries of Del and the effective pledge of
65% of the capital stock of certain foreign subsidiaries of Del, and liens on
substantially all of the tangible and intangible assets of Del and guarantors,
subject to certain exceptions.





                                      -6-
<PAGE>




Pursuant to the merger, all of the Company's outstanding common stock was
acquired for $35 a share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $414,000, comprised of $377,200 for the acquisition of
the outstanding shares and options exercised, $4,500 representing the fair value
of the options exchanged, $18,500 in severance payments, $950 of prepayment
penalties and $12,850 of transaction related costs. The acquisition, as
described above, has been accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standard ("SFAS") 141,
"Business Combinations". The following table summarizes the estimated fair value
of the assets acquired and liabilities assumed at the date of acquisition.

              Current assets                                     $259,101
              Property, plant and equipment                        50,198
              Intangibles arising from acquisitions               264,100
              Goodwill                                            132,763
              Other assets                                         28,151
              Deferred income taxes                                 5,889
                                                                 --------

                 Total assets acquired                           $740,202
                                                                 --------

              Current liabilities                                  77,611
              Long-term pension liability                          22,143
              Deferred income taxes                               124,525
              Long-term debt                                      373,222
                                                                 --------

                 Total liabilities assumed                        597,501
                                                                 --------

                 Net assets acquired                             $142,701
                                                                 ========

Current assets include inventories at a fair value of $124,686 which represents
an increase of $7,810 over the acquired book value.

The components of the increase to the fair value of inventory over the acquired
book value were as follows:

                 Work in process                          $1,573
                 Finished goods                            6,237
                                                          ------

                                                         $ 7,810
                                                         =======

During the second quarter ended June 30, 2005, the Company recorded an
additional step-up to inventory of $4,170 and an offsetting adjustment to
goodwill of $2,527 and deferred taxes of $1,643 resulting from the finalization
of adjusting inventory to fair value. The Company also recorded additional
expense of $2,979 representing the additional amortization of the additional
inventory step-up for the period February 1, 2005 through June 30, 2005
(Successor Period). The fair value of inventory was developed in consultation
with independent valuation specialists. Work in process was based upon the
estimated selling price, less the cost to complete, cost of disposal and a
normal selling profit. Finished goods was based upon the estimated selling price
less the cost of disposal and a normal selling profit. The fair value of raw
materials was based upon the estimated replacement cost, which equaled the
Company's historical cost.

Property, plant and equipment at a fair value of $50,197 represents an increase
of $3,457 over the acquired book value. Of the increase $4,752 is applicable to
land and buildings and $1,295 represents a decrease to machinery and equipment.

Intangible assets of $264,100 includes $159,100 related to trade names of the
Company's various product lines and $105,000 related to customer relationships.
Included in goodwill of $132,763 is a deferred tax liability of $104,051 which
is due principally to the recognition of the intangible asset of $264,100. These
fair values are based in part upon a study performed by a valuation specialist.
The trade names are an indefinite-lived intangible asset which is not subject to
amortization, but does require impairment evaluation during each annual
reporting period to determine whether events and circumstances continue to
support an indefinite useful life. The customer relationships are being
amortized over a 20 year life.





                                      -7-
<PAGE>



During the second quarter ended June 30, 2005, the Company also recorded a net
adjustment to goodwill in the amount of $7,620 to reduce goodwill and deferred
income tax liability, resulting from a recalculation of the deferred tax assets
and liabilities in connection with the merger transaction.

The valuations are based on information that was available as of the acquisition
date and the expectations and assumptions that have been deemed reasonable by
our management. No assurance can be given, however, that the underlying
assumptions or events associated with such assets will occur as projected. For
these reasons, among others, the actual results may vary from the projected
results.

Due to the continuing analyses relating to the determination of the fair values
of the assets acquired and liabilities assumed in connection with our
acquisition (U.S. GAAP permits up to one year from the acquisition date to
complete such analyses), any changes to the fair value of assets or liabilities
acquired based on information as of the acquisition date, will result in an
adjustment to goodwill.

The merger transaction was completed on January 27, 2005. Since the actual
results between the period January 28, 2005 and January 31, 2005 were not
material to the Successor Period of the quarter or to the projected annual
results, the Company has utilized January 31, 2005 as the acquisition date.

As a result of the acquisition, the capital structure of and the basis of
accounting under the "purchase" method for the Company differs from those of the
Company prior to the acquisition. Financial data of the Company for all
reporting periods subsequent to January 31, 2005 (Successor Period) reflect the
acquisition under the purchase method of accounting. Therefore, the Company's
Successor Period financial data generally will not be comparable to the
Company's Predecessor financial data. As a result of the acquisition, the
consolidated statement of operations for the Successor Period includes
amortization expense related to debt issuance costs, original issue discount
amortization and management fees that did not exist prior to the acquisition.
Also, as a result of purchase accounting, the fair values of identifiable
intangibles with definitive lives and property, plant and equipment at the date
of acquisition became their new "cost" basis and depreciation and amortization
of these assets in the Successor Period is based upon their newly established
cost basis. Further, inventory includes a valuation adjustment to eliminate the
manufacturer's profit at the date of acquisition which is being charged to cost
of goods sold as the inventory is sold in the Successor Period. Additionally,
the fair value of our pension assets and liabilities were adjusted as a result
of purchase accounting; therefore pension expense for the Successor Period is
based upon the newly established fair values. Also the deferred tax balances
were adjusted as a result of the purchase accounting adjustments. Other effects
of purchase accounting in the Successor Period are not considered material.

The following table summarizes fiscal 2005 and fiscal 2004 pro forma results as
if the acquisition occurred on January 1, 2004:

                                    3 Months Ended            6 Months Ended
                                        June 30                  June 30
                                  2005          2004        2005         2004
                                  ----          ----        ----         ----

Net sales                      $ 108,904    $ 102,948    $ 198,027    $ 186,013
Loss before income taxes       $  (7,548)   $  (3,059)   $ (38,431)   $ (10,808)
Net loss                       $ (10,114)   $  (1,878)   $ (14,572)   $  (6,636)

The pro forma financial information reflects increased cost of goods sold,
increased interest expense, additional amortization and lower depreciation
expense, new management fees, lower pension expense and savings due to the
retirement of the former CEO.





                                      -8-
<PAGE>




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements of Del
Laboratories, Inc. and subsidiaries ("the Company") have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by U. S. generally
accepted accounting principles for complete financial statements. Interim
results are not necessarily indicative of results for a full year.

A summary of the Company's critical and significant accounting policies are
presented in its 2004 Annual Report. Users of financial information produced for
interim periods are encouraged to refer to the footnotes contained in the 2004
Annual Report when reviewing interim financial results.

The Company accounts for acquired businesses using the purchase method of
accounting which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. Our
consolidated financial statements and results of operations reflect an acquired
business after the completion of the acquisition and are not restated. The cost
to acquire a business, including transaction costs, is allocated to the
underlying net assets of the acquired business in proportion to their respective
fair values. Any excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill.

In the opinion of management, the accompanying interim consolidated financial
statements contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company for interim periods.

Certain reclassifications were made to prior year amounts in order to conform to
the current year presentation. Amortization of the display fixtures, previously
included in the cash flow statements in other assets as net cash provided by
operating activities has been reclassified as a separate line item, amortization
of display fixtures, in net cash provided by operating activities.

3. CAPITAL STRUCTURE

In connection with the merger, the Company issued 4,223,864 shares with a $.01
par value.

4. STOCK OPTION PLANS

The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), and related interpretations, in accounting for its
fixed plan stock options. Under APB No. 25, compensation expense would be
recorded if, on the date of grant, the market price of the underlying stock
exceeded its exercise price. Accordingly, no compensation cost has been
recognized. Had compensation cost for the stock option plans been determined
based on the fair value at the grant dates for awards under the plans,
consistent with the alternative method set forth under SFAS No. 123, "Accounting
for Stock-Based Compensation", and SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure", the Company's net earnings would have
been reduced. The following table illustrates the effect on net earnings if the
Company had applied the fair value recognition provisions of SFAS No. 123, to
stock based employee compensation:
<TABLE>
<CAPTION>

                                             Three Months Ended         Six Months Ended
                                          ----------------------  -------------------------------
                                          SUCCESSOR  PREDECESSOR  SUCCESSOR    PREDECESSOR
                                             PERIOD      PERIOD     PERIOD         PERIOD
                                            ------       ------     ------   --------------------

                                             APR 1,      APR 1,    FEB 1,     JAN 1,     JAN 1,
                                              2005 -     2004 -    2005 -      2005-     2004 -
                                             JUNE 30,   JUNE 30,   JUNE 30,   JAN 31,    JUNE 30,
                                              2005       2004       2005       2005       2004
                                              ----       ----       ----       ----       ----

<S>                                         <C>        <C>        <C>        <C>        <C>
Net earnings (loss), as reported           $(10,114)   $ 3,757   $(13,336)   $ 1,977    $ 4,437
Deduct:  Total stock-based employee
   compensation expense determined under
   fair value based method for all awards
   net of related tax effects              $  --       $  (513)  $  --       $  (125)   $(1,037)
                                           --------    -------   --------    -------    -------
Pro forma net earnings (loss)              $(10,114)   $ 3,244   $(13,336)   $ 1,852    $ 3,400
                                           ========    =======   ========    =======    =======
</TABLE>




                                      -9-
<PAGE>

As a result of the acquisition and pursuant to the terms of 1994 Stock Plan, all
outstanding unvested options became fully vested and exercisable. As of the
acquisition date, there were 2,152 options outstanding, of which 1,727 were
fully vested and 425 unvested. All of the outstanding options were acquired by
the Company at $35 per share, less the exercise price of the stock option.

The Predecessor Company did not issue any new stock options in 2005 or 2004.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 (revised 2004), "Share-Based Payment". Statement 123(R)
requires an entity to recognize the grant-date fair value of stock options and
other equity-based compensation issued to employees in the income statement, but
expresses no preference for a type of valuation model. Statement 123(R) sets
accounting requirements for "share-based" compensation to employees, including
employee stock purchase plans and carries forward prior guidance on accounting
for awards to non-employees. In addition, accounting for employee stock
ownership plans will continue to be accounted for in accordance with Statement
of Position 93-6 and awards to most non-employee directors will be accounted for
as employee awards. Statement 123(R) is effective for public companies as of the
beginning of the first annual reporting period that begins after June 15, 2005
and for annual periods beginning after December 15, 2005 for non-public
entities, however, early adoption is encouraged. We are in the process of
assessing whether the adoption of Statement 123(R) will have an impact on our
consolidated financial statements.



5. INVENTORIES

Inventories are valued at the lower of cost (principally first-in / first-out)
or market value. The Company records reductions to the cost of inventories based
upon its forecasted plans to sell, historical scrap and disposal rates and
physical condition of the inventories. The components of inventories were as
follows:

                                            SUCCESSOR          PREDECESSOR
                                              PERIOD             PERIOD
                                              ------             ------

                                              June 30           December 31
                                               2005                2004
                                             --------            --------

           Raw Materials                     $ 47,954            $ 54,264
           Work in Process                      5,393               5,739
           Finished Goods                      61,599              51,232
                                             --------            --------

                                             $114,946            $111,235
                                             ========            ========



6. INTANGIBLES

Trade names have an indefinite life and relate to several of the Company's
product lines, including Sally Hansen, LaCross, N.Y.C. New York Color, Cornsilk,
Orajel, Dermarest, Stye, Gentle Naturals and Pronto. These trade names have
indefinite lives and are used in advertising and marketing of the products and
are widely recognized and accepted by consumers in the Company's respective
markets. Customer relationships are being amortized on a straight-line basis
over 20 years.

Intangibles arising from acquisitions were as follows:

                                                  SUCCESSOR PERIOD
                                                   JUNE 30, 2005
                                                   -------------

                                 GROSS CARRYING     ACCUMULATED     NET BOOK
                                      VALUE        AMORTIZATION      VALUE
                                      -----        ------------      -----

     Trade names                     $159,100       $   --         $159,100
     Customer relationships           105,000          2,187        102,813
                                     --------       --------       --------

                                     $264,100       $  2,187       $261,913
                                     ========       ========       ========






                                      -10-
<PAGE>






                                                   PREDECESSOR PERIOD
                                                   DECEMBER 31, 2004
                                                   -----------------

                                        GROSS CARRYING ACCUMULATED    NET BOOK
                                            VALUE     AMORTIZATION     VALUE
                                            -----     ------------     -----

      Intellectual property rights         $10,558      $ 3,534      $ 7,024
      Trademarks and other                   3,065        3,004           61
                                           -------      -------      -------

                                           $13,623      $ 6,538      $ 7,085
                                           =======      =======      =======


Amortization expense was $1,313 and $170 for the three months ended June 30,
2005 and 2004, respectively, and amounted to $2,187, $44 and $340 for the 2005
Successor Period, the 2005 Predecessor Period and the six months ended June 30,
2004. The estimated amortization expense for the fiscal years ending December
31, 2005, 2006, 2007, 2008 and 2009, is $5,250, for each of the years. The
useful lives for intellectual property rights, trademarks and other were 20
years.






7. INCOME TAXES

Income taxes for the Successor Period February 1, 2005 to June 30, 2005 of $0.5
million was based on the Company's expected effective tax rate of (3.6%) for the
period February 1, 2005 to December 31, 2005. The expected effective tax rate of
(3.6%) is principally the result of taxable income of foreign subsidiaries,
which is taxed at higher rates than the U.S., offset by a taxable loss in the
U.S. primarily due to the amortization of the inventory step-up and other merger
expenses.

Income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24.4 million, was due to the recording, as an income tax receivable, of
an anticipated federal income tax refund of approximately $11.4 million
attributable to the utilization of a net operating loss carry-back, the
recording of deferred tax assets of approximately $13.3 million attributable to
net operating loss carry-forwards, and the recording of approximately $0.3
million of deferred tax expense related to timing differences.

Income taxes for the Predecessor Period January 1,2004 to June 30, 2004 of $2.8
million was based on the Company's expected annual effective tax rate of 38.6%
for the year 2004.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying consolidated balance sheets. Deferred tax assets and liabilities as
of June 30, 2005 are primarily due to amounts recorded in connection with the
merger transaction. Significant components of the Company's deferred tax assets
and liabilities were as follows:






                                      -11-
<PAGE>







<TABLE>
<CAPTION>




                                                           June 30,    December 31,
                                                             2005          2004
                                                             ----          ----

Deferred tax assets:

<S>                                              <C>                  <C>
   Accounts receivable, principally
      due to allowance for doubtful accounts                $  1,849    $  1,175

   Supplemental Executive Retirement Plan
      (SERP), principally due to
      accrual for financial statement purposes                  --         2,759

   Inventory reserve and fair value adjustment                 9,973       4,843

   Intangibles                                                 3,628        --

   Pension accrual for financial reporting purposes
      and other compensation benefits                           --         3,214

   Tax credit and NOL carry forwards                          13,897         443

   Package design                                                204        --

   Real estate lease allowance                                 1,271         360

   Other                                                       1,885       1,016
                                                            --------    --------

Deferred tax assets                                           32,707      13,810
                                                            --------    --------

Deferred tax liabilities:
   SERP                                                          (58)        --
   Pension                                                    (1,230)        --

   Property, plant and equipment,
      principally due to differences
      in depreciation methods                                (16,327)     (7,435)


   Indentifiable intangibles                                (104,051)        --
   Other                                                      (2,859)       (401)
                                                            --------    --------

Deferred tax liabilities                                    (124,525)     (7,836)
                                                            --------    --------

Net deferred tax assets (liabilities)                       $(91,818)   $  5,974
                                                            ========    ========


</TABLE>




                                      -12-
<PAGE>













8. LONG - TERM DEBT

Long - term debt consisted of the following:

                                                        Successor    Predecessor
                                                         Period        Period

                                                        June 30     December 31
                                                          2005          2004
                                                          ----          ----

     8% senior subordinated notes                       $173,900     $   --
     Term loan                                           199,000         --
     5.56% senior notes                                     --         24,000
     Notes payable under revolving credit agreement        5,000       34,000
     Mortgages on land and buildings                       1,215       13,408
     Obligations under capital leases                        268          326
                                                        --------     --------


                                                        $379,383     $ 71,734
     Less current portion                                  2,176          501
                                                        --------     --------
                                                        $377,207     $ 71,233
                                                        ========     ========

On January 27, 2005, the Company completed a private offering of $175.0 million
of 8% senior subordinated notes (the "notes") due 2012. The notes were issued at
99.34% of par, resulting in net proceeds of $173.8 million before expenses. The
notes are guaranteed by certain of the existing and future domestic subsidiaries
of the Company. The notes and guarantees are unsecured senior subordinated
obligations and rank equally with all future subordinated indebtedness and are
subordinated to the current and future senior indebtedness and other liabilities
of the Company and its subsidiaries. Interest on the notes is payable
semi-annually on February 1 and August 1, commencing on August 1, 2005.

The notes are due February 2012 and may be redeemed at the option of the Company
in whole or in part at any time on or after February 1, 2008 at the redemption
prices set forth in the 8% Senior Subordinated Notes indenture, plus accrued and
unpaid interest and liquidated damages, if any, to the date of redemption. The
Company may also redeem up to 35% of the original aggregate principal amount of
the notes prior to February 1, 2008 with the proceeds of one or more public
equity offerings, at a redemption price equal to 108% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date. The Company may also redeem all the notes upon the occurrence
of a Change in Control (as defined therein), prior to February 1, 2008, at a
redemption price equal to 108% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, to the redemption date. The
Company is required to offer to repurchase the notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the repurchase date under some circumstances involved upon
the occurrence of a Change in Control. The Company must also repurchase the
notes at a price equal to par, plus accrued and unpaid interest and liquidated
damages, if any, to the repurchase date, if the Company sells assets under
certain circumstances.

The notes contain covenants that, among other things, limit the issuance of
additional indebtedness, the incurrence of liens, the payment of dividends or
other distributions, the distributions from certain subsidiaries, the issuance
of preferred stock, the sale of assets and subsidiary stock, transactions with
affiliates and consolidations, mergers and transfers of assets. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications, set forth in the indenture.





                                      -13-
<PAGE>




Concurrently with the offering of the notes, the Company entered into a credit
agreement, as amended with JPMorgan Chase Bank N.A., as administrative agent,
Bear Stearns Corporation Lending Inc., as syndication agent, Deutsche Bank
Securities Inc., as co-agent and documentation agent and the lenders party
thereto from time to time. The agreement provides for maximum borrowings of
$250.0 million consisting of a term loan facility in an aggregate principal
amount of $200.0 million and a revolving credit facility, providing for up to
$50.0 million of revolving loans outstanding at any time (including letters of
credit of up to $15.0 million). The revolving credit facility matures in January
2011 and the term loan facility matures in July 2011. The term loan facility
requires quarterly principal payments of $500.0 commencing on March 31, 2005 and
continues on the last day of each consecutive June, September, December and
March thereafter, with the balance payable at maturity. The senior credit
facilities, subject to certain exceptions, are subject to mandatory prepayments
and reduction in an amount equal to (i) the net proceeds of certain debt
offerings, asset sales and insurance recovery and condemnation events, (ii) 50%
of the net proceeds of certain equity offerings or contributions by Holding II
and (iii) 75% of excess cash flow, as defined in the credit agreement, for any
fiscal year ending on or after December 31, 2005. The obligations of the Company
under the senior credit facilities are guaranteed by Holding II and certain of
the Company's existing and future domestic subsidiaries. The senior credit
facilities and the guarantees thereof are secured by a pledge of the capital
stock of the Company by Holding II, pledges of certain of the capital stock of
the domestic subsidiaries of the Company and the effective pledge of 65% of the
capital stock of certain of the Company's foreign subsidiaries, and liens on
substantially all of the tangible and intangible assets of the Company and the
guarantors, subject to certain exceptions.

On July 26, 2005, the Company entered into a First Amendment to the Credit
Agreement dated as of January 27, 2005, among DLI Holding II Corp., Del
Laboratories, Inc., the several banks and other financial institutions or
entities from time to time parties to the Credit Agreement, J.P. Morgan
Securities, Inc. and Bear Stearns & Co. Inc. as joint lead arrangers, Bear
Stearns Corporate Lending Inc., as syndication agent, Deutsche Bank Securities
inc., as documentation agent and as co-agent, and JP Morgan Chase Bank, N.A. as
administrative agent.

The Lenders have agreed to amend certain provisions of the Credit Agreement to,
among other things, (i) revise the definition on Consolidated EBITDA to include
consultation fees and expense reimbursements associated with implementing
process improvements and cost reductions being developed by the Company in
conjunction with the Synergetics Installations Worldwide, Inc. consulting group;
(ii) provide for an increase in the maximum leverage ratio; and (iii) increase
the rates set forth in the definitions of Applicable Margin and Pricing grids.

Under the terms of the credit agreement, interest rates on borrowings are based
upon, at the Company's option, LIBOR or prime rates. The terms of the agreement
include a commitment fee based on unutilized amounts and an annual agency fee.
The agreement includes covenants, that among other things, limit or restrict the
Company's and its subsidiaries abilities to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay other indebtedness, including
the notes, make dividends, create liens, make equity or debt investments, make
acquisitions, modify the terms of the notes indenture, engage in mergers or make
capital expenditures and engage in certain transactions with affiliates. The
agreement also requires us to enter into interest rate protection agreements to
provide interest rate protection for a minimum of 50% of our consolidated funded
indebtedness for three years. Effective March 21, 2005, we entered into an
interest rate swap to provide the required interest rate protection. The swap
contract was for a notional amount of $12.5 million for a three-year term. The
value of the swap contract was "out-of-the-money" by $181 thousand at June 30,
2005. In addition, the Company is required to comply with specified financial
ratios and tests.

Upon completion of the merger on January 27, 2005, the outstanding principal
balance of $24.0 million on the 5.56% senior notes, plus accrued and unpaid
interest, and prepayment penalties of approximately $1.0 million were repaid.
Also upon completion of the merger, the principal balance of $33.2 million under
the Company's prior credit facility with JPMorgan Chase Bank N.A., along with
accrued and unpaid interest and fees of approximately $80.6 were repaid. The
outstanding principal balance of $12.1 million on the mortgage for the Company's
property in North Carolina, together with accrued and unpaid interest, and
prepayment penalties of $383.0 were also repaid, upon completion of the merger.




                                      -14-
<PAGE>


9. EMPLOYEE PENSION PLANS

The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees. The Del Non-Union Plan formula is based on
years of service and the employee's compensation during the five years before
retirement. The Del LaCross Union Plan formula is based on years of service. The
LaCross Plan covers former employees of the Company's Newark, New Jersey
facility which ceased operations during 2002. As a result of this closure, more
than 20% of plan participants in the LaCross Plan were terminated, which
resulted in a partial termination of the plan. Due to the partial termination of
the plan, all affected participants became fully vested in their accrued
benefits at their termination date. Assets held by these plans consist of cash
and cash equivalents, fixed income securities consisting of U.S. government and
corporate bonds and common stocks. The Company also has a defined benefit
supplemental executive retirement plan (SERP) for certain of its executives. The
SERP is a non-qualified plan under the Internal Revenue Code. The assets in the
SERP trust are considered assets of the Company, not plan assets, and as such,
are included in other assets on the accompanying consolidated balance sheets.
The assets of the SERP, which consist of cash and cash equivalents, are
held-to-maturity securities and, as such, are carried at cost plus accrued
interest.

As a result of the merger, the Company recorded a fair value adjustment to its
pension assets and liabilities of $10.5 million. The adjustment was the result
of an increase of $9.8 million in liabilities and a reduction of plan assets of
$0.7 million.






COMPONENTS OF NET PERIOD BENEFIT COST

The components of net periodic benefit costs of the Company's domestic plans are
set forth in the following tables:

                                SUCCESSOR PERIOD
                          APRIL 1, 2005 - JUNE 30, 2005

                                            DEL NON-    DEL LACROSS
                                           UNION PLAN      PLAN           SERP
                                           ----------      ----           ----

Service Cost                                $   928       $  --         $     8
Interest Cost                                   654            18           108
Expected return on plan assets                 (621)          (17)         --
Recognized net loss                               3          --            --
                                            -------       -------       -------

Net periodic cost                           $   964       $     1       $   116
                                            =======       =======       =======




                               PREDECESSOR PERIOD
                          APRIL 1, 2004 - JUNE 30, 2004

                                            DEL NON-    DEL LACROSS
                                           UNION PLAN      PLAN           SERP
                                           ----------      ----           ----

Service Cost                                $   770       $  --         $    13
Interest Cost                                   578            19           106
Expected return on plan assets                 (516)          (18)         --
Recognized prior service cost                    13          --              37
Recognized net loss                             191             4            (3)
                                            -------       -------       -------

Net periodic cost                           $ 1,036       $     5       $   153
                                            =======       =======       =======








                                      -15-
<PAGE>

                                SUCCESSOR PERIOD
                        FEBRUARY 1, 2005 - JUNE 30, 2005

                                            DEL NON-    DEL LACROSS
                                           UNION PLAN      PLAN           SERP
                                           ----------      ----           ----

Service Cost                                $ 1,528       $  --         $    13
Interest Cost                                 1,082            30           180
Expected return on plan assets               (1,038)          (28)         --
Recognized net loss                               3          --            --
                                            -------       -------       -------

Net periodic cost                           $ 1,575       $     2       $   193
                                            =======       =======       =======




                               PREDECESSOR PERIOD
                       JANUARY 1, 2005 - JANUARY 31, 2005

                                            DEL NON-    DEL LACROSS
                                           UNION PLAN      PLAN           SERP
                                           ----------      ----           ----

Service Cost                                $   300       $  --         $     3
Interest Cost                                   214             6            36
Expected return on plan assets                 (207)           (6)         --
Recognized prior service cost                     4          --              12
Recognized net loss                              77             2             7
                                            -------       -------       -------

Net periodic cost                           $   388       $     2       $    58
                                            =======       =======       =======




                               PREDECESSOR PERIOD
                         SIX MONTHS ENDED JUNE 30, 2004


                                           DEL NON-    DEL LACROSS
                                           UNION PLAN      PLAN           SERP
                                           ----------      ----           ----

Service Cost                                $ 1,540       $  --         $    26
Interest Cost                                 1,156            38           212
Expected return on plan assets               (1,032)          (36)         --
Recognized prior service cost                    26          --              74
Recognized net (gain) loss                      382             8            (6)
                                            -------       -------       -------

Net periodic cost                           $ 2,072       $    10       $   306
                                            =======       =======       =======



CONTRIBUTIONS

The Company previously disclosed in its financial statements for the year ended
December 31, 2004, that it expects to contribute in 2005 approximately $4,189 to
its Non-Union Plan. As of June 30, 2005, $1,708 of contributions have been made
to the Non-Union Plan. The Company presently anticipates contributing an
additional $2,330 to fund its Non-Union Plan for a total of $4,038.






                                      -16-
<PAGE>






10. CLOSURE OF FARMINGDALE PLANT

On May 30, 2003, the Company announced the formal plan for the transfer of its
principal manufacturing operations, for both the Cosmetic and Pharmaceutical
segments, to Rocky Point, North Carolina from Farmingdale, New York. Pursuant to
the Company's formal severance policy for non-union employees and, severance
benefits due under the union contract resulting from the plant closure, a charge
of $2,033 for severance costs and related benefits for approximately 360 union
and non-union employees associated with this move was recorded during 2003.
Additional severance benefits earned by employees terminated were recognized as
a charge in the financial statements as such severance benefits were earned.
During the first quarter of 2004, a provision of $56 was recorded for such
earned severance benefits, net of adjustments of $66 to the initial accrual,
which resulted in a net recovery of $10. During the second quarter of 2004, a
provision of $18 was recorded for such earned severance benefits, net of
adjustments of $5 to the initial accrual, which resulted in a net provision of
$13. No additional severance expenses were incurred during 2005. During 2005 and
2004, $(3) and $90, respectively, of relocation and other move related costs
were expensed as incurred. As of June 30, 2005, all union and non-union
employees have been terminated and $2,052 in severance benefits were paid.

A summary of the activity in the accrual for the plant closure was as follows:

                      Balance December 31, 2004             $  52

                             Payments                         (51)
                                                            ------

                      Balance June 30, 2005                 $   1
                                                            =====


11. SALE OF BUILDING AND LAND

On February 13, 2002, the Company sold 13.5 acres of vacant land in Farmingdale,
New York to an unrelated third party. In connection with this sale, an option
was granted to the buyer for the remaining 8.5 acres of improved land and
buildings owned by the Company which was exercised by the buyer on June 30,
2004. The improved land and buildings were sold for gross proceeds of $5,000,
which was reduced by $320 for closing costs and increased by $136 for other
closing adjustments, resulting in net proceeds of $4,816. The improved land and
buildings had a book value at June 30, 2004 of $4,513. After closing costs of
$320 and other transaction related expenses of $208, the sale resulted in a loss
of $41 ($25 after-tax).




12. COMPREHENSIVE INCOME

The components of comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>

                                            THREE MONTHS ENDED        SIX MONTHS ENDED
                                            ------------------        ----------------

                                            SUCCESSOR  PREDECESSOR SUCCESSOR    PREDECESSOR
                                              PERIOD    PERIOD     PERIOD         PERIOD
                                              ------    ------     ------         ------


                                              APR 1,     APR 1,    FEB 1,     JAN 1,      JAN 1,
                                              2005 -     2004 -    2005 -      2005-      2004-
                                             JUNE 30,   JUNE 30,  JUNE 30,    JAN 31,    JUNE 30,
                                               2005      2004       2005       2005       2004
                                             -------    -------    -------    -------    -------

<S>                                          <C>        <C>        <C>        <C>        <C>
Net earnings (loss)                         $(10,114)   $ 3,757   $(13,336)   $ 1,977    $ 4,437

Foreign currency translation gain / (loss)      (125)       (64)       137       (346)      (229)
                                            --------    -------   --------    -------    -------

Total comprehensive income (loss)           $(10,239)   $ 3,693   $(13,199)   $ 1,631    $ 4,208
                                            ========    =======   ========    =======    =======
</TABLE>





                                      -17-
<PAGE>



13. SEGMENT INFORMATION

The Company operates in two segments, Cosmetic and Pharmaceutical, that have
been organized by the products and services they offer. The Cosmetic segment's
principal products are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and other related
cosmetic items. The Pharmaceutical segment's principal products are oral
analgesics, oral hygiene, eye/ear products and first aid products. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates the
performance of its operating segments based on operating income. Certain assets,
including property, plant and equipment and deferred tax assets, are not
allocated to the identifiable segments; depreciation of unallocated assets is
charged to the Cosmetic segment.
<TABLE>
<CAPTION>

                                          THREE MONTHS ENDED               SIX MONTHS ENDED
                                          ------------------               ----------------

                                        SUCCESSOR    PREDECESSOR   SUCCESSOR           PREDECESSOR
                                         PERIOD        PERIOD      PERIOD               PERIOD

                                         APR 1,        APR 1,      FEB 1,      JAN 1, -      JAN 1,
                                         2005 -        2004-      2005 -        2005         2004-
                                        JUNE 30,      JUNE 30,    JUNE 30,     JAN 31,      JUNE 30,
                                         2005          2004         2005        2005          2004
                                         ----          ----         ----        ----          ----
Net sales:
<S>                                    <C>          <C>          <C>          <C>          <C>
   Cosmetic                            $  86,930    $  82,078    $ 142,317    $  14,756    $ 147,316
   Pharmaceutical                         21,974       20,870       37,504        3,450       38,697
                                       ---------    ---------    ---------    ---------    ---------
   Consolidated                        $ 108,904    $ 102,948    $ 179,821    $  18,206    $ 186,013
                                       =========    =========    =========    =========    =========

Operating income (loss):
   Cosmetic                            $  (5,750)   $   3,398    $  (8,562)   $ (17,714)   $   3,740
   Pharmaceutical                          5,177        3,902        7,344       (4,247)       5,740
                                       ---------    ---------    ---------    ---------    ---------
   Consolidated                        $    (573)   $   7,300    $  (1,218)   $ (21,961)   $   9,480

Other income (expense):
   Loss on sale of building and land   $    --      $     (41)   $    --      $    --      $     (41)
   Interest expense, net               $  (6,882)   $    (836)   $ (11,732)   $    (264)   $  (1,859)
   Other income (expense), net         $     (93)   $    (304)   $      77    $    (232)   $    (354)
                                       ---------    ---------    ---------    ---------    ---------

Earnings (loss) before income taxes    $  (7,548)   $   6,119    $ (12,873)   $ (22,457)   $   7,226
                                       =========    =========    =========    =========    =========

Depreciation and amortization:
   Cosmetic                            $   2,461    $   2,021    $   4,140    $     707    $   3,955
   Pharmaceutical                            744          115        1,217           41          224
                                       ---------    ---------    ---------    ---------    ---------
   Consolidated                        $   3,205    $   2,136    $   5,357    $     748    $   4,179
                                       =========    =========    =========    =========    =========

Amortization of display fixtures:
   Cosmetic                            $   2,213    $   2,223    $   3,702    $     764    $   4,291
   Pharmaceutical                           --           --           --           --           --
                                       ---------    ---------    ---------    ---------    ---------

   Consolidated                        $   2,213    $   2,223    $   3,702    $     764    $   4,291
                                       =========    =========    =========    =========    =========
</TABLE>


For the three months ended June 30, 2004, a severance expense of $13 was
included in the operating income of the segments, as follows: Cosmetic - $8.5
and Pharmaceutical - $4.5. For the six months ended June 30, 2004, severance
expense of $3 was included in the operating income of the segments, as follows:
Cosmetic - $2 and Pharmaceutical - $1.




                                      -18-
<PAGE>




(14) Condensed Consolidating Financial Information

The Company's obligations related to its senior credit facilities and the 8%
senior subordinated notes are guaranteed jointly and severally by the Company's
direct and indirect present and future domestic restricted subsidiaries (the
"Guarantors"). The following financial information sets forth, on a condensed
consolidating basis, balance sheets, statements of earnings and statements of
cash flows for domestic subsidiaries of the Company that are Guarantors
(collectively, the "Guarantor Subsidiaries") and foreign subsidiaries of the
Company that are not Guarantors (collectively, the "Non-Guarantor
Subsidiaries"). Separate financial statements for the Subsidiary Guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to the investor. The accounting
policies of the parent company, the Subsidiary Guarantors and the Subsidiary
Non-Guarantors are the same as those described for the Company in the Form S-4
Registration Statement.
<TABLE>
<CAPTION>


                           CONSOLIDATING BALANCE SHEET
                                SUCCESSOR PERIOD
                                 June 30, 2005


                                                                         Guarantor  Non-Guarantor
                                                             Issuer    Subsidiaries Subsidiaries  Eliminations Consolidated
                                                             ------    -------------------------  -------------------------
       ASSETS

Current assets:
<S>                                                         <C>          <C>          <C>          <C>          <C>
       Cash and cash equivalents                            $   6,393    $    (535)   $     371    $    --      $   6,229
       Accounts receivable                                     66,934       18,131        5,556         --         90,621
       Inventories                                             92,328        8,236       14,382         --        114,946
       Income taxes receivable                                 33,251      (22,251)       1,184         --         12,184
       Deferred income taxes                                   27,173         (355)        --           --         26,818
       Prepaid expenses and other current assets                3,793          349           40         --          4,182
                                                            ---------    ---------    ---------    ---------    ---------
               Total current assets                           229,872        3,575       21,533         --        254,980

Property, plant and equipment, net                             43,803        2,229        3,990         --         50,022
Intercompany                                                  104,631      (90,052)     (14,579)        --           --
Intangibles arising from acquisitions, net                    171,413       90,500         --           --        261,913
Goodwill                                                       96,877       35,886         --           --        132,763
Other assets                                                   27,566         --            696         --         28,262
Note receivable                                                 6,430         --           --         (6,430)        --
Deferred income taxes                                          41,542      (35,653)        --           --          5,889
                                                            ---------    ---------    ---------    ---------    ---------
               Total assets                                 $ 722,134    $   6,485    $  11,640    $  (6,430)   $ 733,829
                                                            =========    =========    =========    =========    =========

       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Current portion of long-term debt                    $   2,124    $    --      $      52    $    --      $   2,176
       Accounts payable                                        42,508        2,927        2,474         --         47,909
       Accrued liabilities                                     25,224        3,470        1,673         --         30,367
       Income taxes payable                                      --           --           --           --           --
                                                            ---------    ---------    ---------    ---------    ---------
               Total current liabilities                       69,856        6,397        4,199         --         80,452

Long-term pension liability, less current portion              22,143         --           --           --         22,143
Deferred income taxes                                         124,390          122           13         --        124,525
Deferred liability                                               --           --           --           --           --
Note payable                                                     --           --          6,430       (6,430)        --
8% senior notes                                               173,900                      --                    173,900
Long-term debt, less current portion                          202,143         --          1,164                  203,307
                                                            ---------    ---------    ---------    ---------    ---------
              Total liabilities                               592,432        6,519       11,806       (6,430)     604,327
                                                            ---------    ---------    ---------    ---------    ---------

Shareholders' equity:
       Common stock $.01 par value, authorized
          4,223,864 shares; issued 4,223,864 shares                42         --           --           --             42
       Additional paid-in capital                             142,659         --           --           --        142,659
       Accumulated other comprehensive loss                        (3)        --            140         --            137
       Retained earnings                                      (12,996)         (34)        (306)        --        (13,336)
                                                            ---------    ---------    ---------    ---------    ---------

               Total shareholders' equity                     129,702          (34)        (166)        --        129,502
                                                            ---------    ---------    ---------    ---------    ---------


               Total liabilities and shareholders' equity   $ 722,134    $   6,485    $  11,640    $  (6,430)   $ 733,829
                                                            =========    =========    =========    =========    =========
</TABLE>





                                      -19-
<PAGE>






<TABLE>
<CAPTION>



                           CONSOLIDATING BALANCE SHEET
                               PREDECESSOR PERIOD
                                December 31, 2004


                                                                       Guarantor    Non-Guarantor
                                                              Issuer   Subsidiaries Subsidiaries Eliminations Consolidated
                                                              ------   ---------------------------------------------------
       ASSETS

Current assets:
<S>                                                         <C>          <C>          <C>          <C>          <C>
       Cash and cash equivalents                            $   3,607    $    (398)   $     664    $    --      $   3,873
       Accounts receivable, net                                58,062       17,016        3,899         --         78,977
       Inventories                                             87,410       11,805       12,020         --        111,235
       Income taxes receivable                                    177         --           --           --            177
       Deferred income taxes                                    7,075          149         --           --          7,224
       Prepaid expenses and other current assets                3,065          325          118         --          3,508
                                                            ---------    ---------    ---------    ---------    ---------
               Total current assets                           159,396       28,897       16,701         --        204,994

Property, plant and equipment, net                             42,094          996        3,679         --         46,769
Intercompany                                                 (103,361)     105,837         (951)      (1,525)        --
Intangibles arising from acquisitions, net                      7,080            5         --           --          7,085
Goodwill                                                        3,520        2,762         --           --          6,282
Other assets                                                   13,195           18          530         --         13,743
Note receivable                                                 6,430         --           --         (6,430)        --
Deferred income taxes                                           6,301          286         --           --          6,587
                                                            ---------    ---------    ---------    ---------    ---------
               Total assets                                 $ 134,655    $ 138,801    $  19,959    $  (7,955)   $ 285,460
                                                            =========    =========    =========    =========    =========

       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Current portion of long-term debt                    $     450    $    --      $      51    $    --      $     501
       Accounts payable                                        46,283        3,000        1,247         --         50,530
       Accrued liabilities                                     14,192        4,186        1,356         --         19,734
       Income taxes payable                                   (21,865)      22,360         (495)        --           --
                                                            ---------    ---------    ---------    ---------    ---------
               Total current liabilities                       39,060       29,546        2,159         --         70,765

Long-term pension liability, less current portion              12,273         --           --           --         12,273
Deferred income taxes                                           7,619          204           13         --          7,836
Deferred liability                                              1,405         --           --           --          1,405
Note payable                                                     --           --          6,430       (6,430)        --
Long-term debt, less current portion                           70,018         --          1,215         --         71,233
                                                            ---------    ---------    ---------    ---------    ---------
               Total liabilities                              130,375       29,750        9,817       (6,430)     163,512
                                                            ---------    ---------    ---------    ---------    ---------

Shareholders' equity:
       Preferred stock $ .01 par value, authorized
          1,000,000 shares; no shares issued                     --           --           --           --           --
       Common stock $1 par value, authorized
          20,000,000 shares; issued 10,000,000 shares          10,016            1            2          (19)      10,000
       Additional paid-in capital                               9,348        1,000            5       (1,005)       9,348
       Accumulated other comprehensive loss                    (3,844)         (38)       1,519         --         (2,363)
       Retained earnings                                       (5,285)     108,088        8,616         (501)     110,918
                                                            ---------    ---------    ---------    ---------    ---------
                                                               10,235      109,051       10,142       (1,525)     127,903

       Less: Treasury stock at cost, 242,553 shares
                  in 2004                                      (5,453)        --           --           --         (5,453)
                  Receivables for stock options exercised        (502)        --           --           --           (502)
                                                            ---------    ---------    ---------    ---------    ---------
               Total shareholders' equity                       4,280      109,051       10,142       (1,525)     121,948
                                                            ---------    ---------    ---------    ---------    ---------

               Total liabilities and shareholders' equity   $ 134,655    $ 138,801    $  19,959    $  (7,955)   $ 285,460
                                                            =========    =========    =========    =========    =========
</TABLE>






                                      -20-
<PAGE>


<TABLE>
<CAPTION>




                       CONSOLIDATING STATEMENT OF EARNINGS
                                SUCCESSOR PERIOD
                          April 1, 2005 - June 30, 2005



                                                            Guarantor      Non-Guarantor
                                             Issuer       Subsidiaries     Subsidiaries  Eliminations  Consolidated

<S>                                         <C>            <C>            <C>                           <C>
Net sales                                   $  79,260      $  20,852      $   8,792                     $ 108,904

Cost of goods sold                             52,182          7,449          4,864                        64,495
Selling and administrative expenses            25,743         14,181          4,334                        44,258
Severance expenses                               --             --             --                            --
Merger expenses                                   724           --             --                             724
                                            ---------      ---------      ---------      ---------      ---------

     Operating income (loss)                      611           (778)          (406)          --             (573)

Other income (expense):
     Interest expense, net                     (6,808)          --              (74)                       (6,882)
     Other income (expense), net                   (9)          --              (84)                          (93)
                                            ---------      ---------      ---------      ---------      ---------


Loss before income taxes                       (6,206)          (778)          (564)          --           (7,548)
Provision for (benefit from) income taxes       2,826           (459)           199                         2,566
                                            ---------      ---------      ---------      ---------      ---------

     Net loss                               $  (9,032)     $    (319)     $    (763)     $    --        $ (10,114)
                                            =========      =========      =========      =========      =========






</TABLE>















                                      -21-
<PAGE>

<TABLE>
<CAPTION>


                       CONSOLIDATING STATEMENT OF EARNINGS
                               PREDECESSOR PERIOD
                          April 1, 2004 - June 30, 2004


                                                        Guarantor      Non-Guarantor
                                            Issuer     Subsidiaries    Subsidiaries  Eliminations   Consolidated
                                            ------     ------------    ------------  ------------   ------------

<S>                                       <C>            <C>            <C>          <C>            <C>
Net sales                                 $  74,224      $  19,729      $   8,995                     $ 102,948

Cost of goods sold                           42,424          5,470          4,476                        52,370
Selling and administrative expenses          28,175         10,714          4,160                        43,049
Severance expenses                                9              4           --                              13
Merger expenses                                 216           --             --                             216
                                          ---------      ---------      ---------      ---------      ---------

     Operating income                         3,400          3,541            359           --            7,300

Other income (expense):
      Loss on sale of building and land         (41)          --             --                             (41)
     Interest expense, net                     (702)          --             (134)                         (836)
     Other income (expense), net               (101)           (19)          (184)                         (304)
                                          ---------      ---------      ---------      ---------      ---------


Earnings before income taxes                  2,556          3,522             41           --            6,119
Provision for income taxes                    1,035          1,282             45                         2,362
                                          ---------      ---------      ---------      ---------      ---------

     Net earnings                         $   1,521      $   2,240      $      (4)     $    --        $   3,757
                                          =========      =========      =========      =========      =========



</TABLE>









                                      -22-
<PAGE>
<TABLE>
<CAPTION>

                       CONSOLIDATING STATEMENT OF EARNINGS
                                SUCCESSOR PERIOD
                        February 1, 2005 - June 30, 2005



                                                           Guarantor    Non-Guarantor
                                             Issuer       Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                             ------       ------------   ------------  ------------  ------------

<S>                                         <C>            <C>            <C>             <C>        <C>
Net sales                                   $ 128,493      $  35,602      $  15,726                     $ 179,821

Cost of goods sold                             82,880         11,917          8,428                       103,225
Selling and administrative expenses            42,816         23,029          7,318                        73,163
Merger expenses                                 3,950            701           --                           4,651
                                            ---------      ---------      ---------      ---------      ---------

     Operating loss                            (1,153)           (45)           (20)          --           (1,218)

Other income (expense):
     Interest expense, net                    (11,610)          --             (122)                      (11,732)
     Other income (expense), net                   (1)            (2)            80                            77
                                            ---------      ---------      ---------      ---------      ---------


Loss before income taxes                      (12,764)           (47)           (62)          --          (12,873)
Provision for (benefit from) income taxes         232            (13)           244                           463
                                            ---------      ---------      ---------      ---------      ---------

     Net earnings Loss                      $ (12,996)     $     (34)     $    (306)     $    --        $ (13,336)
                                            =========      =========      =========      =========      =========


</TABLE>










                                      -23-
<PAGE>
<TABLE>
<CAPTION>



                       CONSOLIDATING STATEMENT OF EARNINGS
                               PREDECESSOR PERIOD
                       January 1, 2005 - January 31, 2005


                                                    Guarantor     Non-Guarantor
                                       Issuer      Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                       ------      ------------   ------------   ------------  ------------

<S>                                   <C>            <C>            <C>            <C>         <C>
Net sales                             $ 13,389       $  3,129       $  1,688                      $ 18,206

Cost of goods sold                       7,890            952            876                         9,718
Selling and administrative expenses      7,140          3,270          1,065                        11,475
Severance expenses                        --             --             --                            --
Merger expenses                         15,483          3,491           --                          18,974
                                      --------       --------       --------       --------       --------

     Operating loss                    (17,124)        (4,584)          (253)          --          (21,961)

Other income (expense):
     Interest expense, net                (239)          --              (25)                         (264)
     Other income (expense), net           (11)          --             (221)                         (232)
                                      --------       --------       --------       --------       --------


Loss before income taxes               (17,374)        (4,584)          (499)          --          (22,457)
Benefit from income taxes              (24,273)                         (161)                      (24,434)
                                      --------       --------       --------       --------       --------

     Net earnings (loss)              $  6,899       $ (4,584)      $   (338)      $   --         $  1,977
                                      ========       ========       ========       ========       ========


</TABLE>












                                      -24-
<PAGE>
<TABLE>
<CAPTION>


                       CONSOLIDATING STATEMENT OF EARNINGS
                               PREDECESSOR PERIOD
                         Six Months ended June 30, 2004


                                                       Guarantor     Non-Guarantor
                                          Issuer      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                          ------      ------------   ------------   ------------   ------------

<S>                                      <C>            <C>            <C>                           <C>
Net sales                                $ 132,630      $  36,377      $  17,006                     $ 186,013

Cost of goods sold                          75,273          9,784          8,528                        93,585
Selling and administrative expenses         53,201         21,763          7,765                        82,729
Severance expenses                               2              1           --                               3
Merger expenses                                216           --             --                             216
                                         ---------      ---------      ---------      ---------      ---------

     Operating income                        3,938          4,829            713           --            9,480

Other income (expense):
     Loss on sale of building and land         (41)          --             --                             (41)
     Interest expense, net                  (1,702)          --             (157)                       (1,859)
     Other income (expense), net              (155)           (26)          (173)                         (354)
                                         ---------      ---------      ---------      ---------      ---------


Earnings before income taxes                 2,040          4,803            383           --            7,226
Provision for income taxes                     905          1,697            187                         2,789
                                         ---------      ---------      ---------      ---------      ---------

     Net earnings                        $   1,135      $   3,106      $     196      $    --        $   4,437
                                         =========      =========      =========      =========      =========

</TABLE>












                                      -25-
<PAGE>
<TABLE>
<CAPTION>



                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                SUCCESSOR PERIOD
                        February 1, 2005 - June 30, 2005



                                                                       Guarantor    Non-Guarantor
                                                             Issuer   Subsidiaries  Subsidiaries Eliminations  Consolidated
                                                             ------   ------------  -------------------------  ------------
Cash flows from operating activities:
<S>                                                        <C>          <C>          <C>          <C>          <C>
 Net earnings (loss)                                       $ (12,996)   $     (34)   $    (309)   $       3    $ (13,336)
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                  4,901          222          232            2        5,357
Amortization of display fixtures                               3,443         --            259                     3,702
Amortization of inventory fair value adjustment                3,468        1,479          632                     5,579
Amortization of deferred financing fees &
  original issue discount                                        940         --           --                         940
Deferred income taxes                                         (1,189)         352         --                        (837)
Provision for doubtful accounts                                   87           13         --                         100
Other non-cash operating items                                   (14)        --            (84)                      (98)
Changes in operating assets and liabilities:
      Accounts receivable                                    (11,726)      (3,762)      (2,309)                  (17,797)
      Inventories                                              1,306        4,266       (1,230)                    4,342
      Prepaid expenses and other current assets                 (697)         354           45                      (298)
      Other assets                                            (4,669)          15         (395)                   (5,049)
      Accounts payable                                        (1,830)      (1,223)          57                    (2,996)
      Accrued liabilities                                    (13,080)        (634)         316                   (13,398)
      Pension liability (net)                                    885         --           --                         885
      Income taxes receivable / payable                          304         (109)        (585)          (3)        (393)
      Intercompany receivables / payables                     (1,203)      (1,352)       2,522           33         --
                                                           ---------    ---------    ---------    ---------    ---------

        Net cash provided by (used in)
           operating activities                              (32,070)        (413)        (849)          35      (33,297)
                                                           ---------    ---------    ---------    ---------    ---------

Cash flows provided by (used in) investing activities:
      Property, plant and equipment additions                 (2,910)          (7)         (12)                   (2,929)
      Purchase of Del Laboratories, Inc                     (377,233)        --           --                    (377,233)
                                                           ---------    ---------    ---------    ---------    ---------

        Net cash used in investing activities               (380,143)          (7)         (12)        --       (380,162)
                                                           ---------    ---------    ---------    ---------    ---------

Cash flows provided by (used in) financing activities:
      Borrowings under revolving credit agreement              5,000         --           --                       5,000
      Principal payments under mortgages                        --           --            (27)                      (27)
      Principal payments under term loan                      (1,000)        --           --                      (1,000)
      Repayment of existing debt in
         connection with merger                              (69,316)        --           --                     (69,316)
      Issuance of senior subordinated notes                  173,845         --           --                     173,845
      Issuance of term loan                                  200,000         --           --                     200,000
      Payment of deferred financing and other
         merger related                                      (29,305)        --           --                     (29,305)
      Contributed Capital                                    138,200         --           --                     138,200
      Payment of capital lease obligations                       (59)        --           --                         (59)
                                                           ---------    ---------    ---------    ---------    ---------

        Net cash provided by (used in)
          financing activities                               417,365         --            (27)        --        417,338
                                                           ---------    ---------    ---------    ---------    ---------

Effect of exchange rate changes on cash                         --           --              8          (35)         (27)
                                                           ---------    ---------    ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents           5,152         (420)        (880)        --          3,852

Cash and cash equivalents at beginning of year                 1,241         (115)       1,251         --          2,377
                                                           ---------    ---------    ---------    ---------    ---------

Cash and cash equivalents at end of year                   $   6,393    $    (535)   $     371    $    --      $   6,229
                                                           =========    =========    =========    =========    =========

</TABLE>





                                      -26-
<PAGE>

<TABLE>
<CAPTION>


                      CONSOLIDATING STATEMENT OF CASH FLOWS
                               PREDECESSOR PERIOD
                       January 1, 2005 - January 31, 2005

                                                                       Guarantor    Non-Guarantor
                                                          Issuer     Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                                          ------     ------------   ------------  ------------  ------------
Cash flows from operating activities:
<S>                                                      <C>           <C>           <C>           <C>          <C>
 Net earnings (loss)                                     $  6,899      $ (4,584)     $   (338)                   $  1,977
Adjustments to reconcile net earnings
  (loss) to net cash provided by (used in)
  operating activities:
Depreciation and amortization                                 673            40            35                         748
Amortization of display fixtures                              723                          41                         764
Amortization of deferred financing fees                        20                                                      20
Deferred income taxes                                     (13,030)                                                (13,030)
Provision for (recovery from) doubtful accounts                25                           1                          26
Tax benefit on stock options exercised                         57                                                      57
Other non-cash operating items                                 (9)                        228                         219
Changes in operating assets and liabilities:
      Accounts receivable                                   2,740         2,635           598                       5,973
      Inventories                                          (4,838)         (104)       (1,121)                     (6,063)
      Prepaid expenses and other current assets               (32)         (377)           30                        (379)
      Other assets                                         (1,609)            3           (80)                     (1,686)
      Accounts payable                                     (1,945)        1,150         1,200                         405
      Accrued liabilities                                  21,827          (133)           26                      21,720
      Deferred liability                                    1,367                                                   1,367
      Pension liability (net)                                (330)                                                   (330)
      Income taxes receivable / payable                   (11,344)                       (254)                    (11,598)
      Intercompany receivables / payables                  (1,909)        1,665           256           (12)         --
                                                         --------      --------      --------      --------      --------

        Net cash provided by (used in)
                operating activities                         (715)          295           622           (12)          190
                                                         --------      --------      --------      --------      --------

Cash flows provided by (used in) investing activities:
      Property, plant and equipment additions                (781)          (12)           (4)                       (797)
                                                         --------      --------      --------      --------      --------

        Net cash used in investing activities                (781)          (12)           (4)         --            (797)
                                                         --------      --------      --------      --------      --------

Cash flows provided by (used in) financing activities:
      Principal payments under mortgages                      (25)                          2                         (23)
      Principal payments under revolving
        credit agreement                                     (800)                                                   (800)
      Proceeds from the exercise of stock options              12                                                      12
      Acquisition of treasury stock                           (57)                                                    (57)
                                                         --------      --------      --------      --------      --------

        Net cash provided by (used in)
           financing activities                              (870)         --               2          --            (868)
                                                         --------      --------      --------      --------      --------

Effect of exchange rate changes on cash                      --            --             (33)           12           (21)
                                                         --------      --------      --------      --------      --------

Net increase (decrease) in cash
        and cash equivalents                               (2,366)          283           587          --          (1,496)

Cash and cash equivalents at
        beginning of year                                   3,607          (398)          664                       3,873
                                                         --------      --------      --------      --------      --------

Cash and cash equivalents at end of year                 $  1,241      $   (115)     $  1,251      $   --        $  2,377
                                                         ========      ========      ========      ========      ========


</TABLE>





                                      -27-
<PAGE>

<TABLE>
<CAPTION>

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                               PREDECESSOR PERIOD
                         January 1, 2004 - June 30, 2004

                                                                      Guarantor    Non-Guarantor
                                                         Issuer      Subsidiaries   Subsidiaries Eliminations Consolidated
                                                         ------      ------------   --------------------------------------
Cash flows from operating activities:
<S>                                                      <C>           <C>           <C>           <C>
 Net earnings                                            $ 1,135       $ 3,106       $   196                     $ 4,437
Adjustments to reconcile net earnings to net cash
 provided by (used in) operating activities:
Depreciation and amortization                              3,736           226           218            (1)        4,179
Amortization of display fixtures                           4,052          --             239                       4,291
Amortization of deferred financing fees                      111          --            --                           111
Provision for (recovery from) doubtful accounts              (39)           30          --                            (9)
Tax benefit on stock options exercised                       444          --            --                           444
Gain on sale of building and land                             41          --            --                            41
Other non-cash operating items                               133          --             187                         320
Changes in operating assets and liabilities:
      Accounts receivable                                 (1,719)       (1,258)         (186)                     (3,163)
      Inventories                                         (9,452)         (461)          131                      (9,782)
      Prepaid expenses and other current assets             (202)           95            52                         (55)
      Other assets                                        (5,757)           17          (196)                     (5,936)
      Accounts payable                                     2,215           683          (575)                      2,323
      Accrued liabilities                                     73        (1,014)           60                        (881)
      Deferred liability                                      49          --            --                            49
      Pension liability (net)                                233          --            --                           233
      Income taxes receivable / payable                   (5,052)        1,629          (196)                     (3,619)
      Intercompany receivables / payables                  3,315        (3,643)          329            (1)         --
                                                         -------       -------       -------       -------       -------

        Net cash provided by (used in)
           operating activities                           (6,684)         (590)          259            (2)       (7,017)
                                                         -------       -------       -------       -------       -------

Cash flows provided by (used in) investing activities:
      Net proceeds from sale of building and land          4,816          --            --                         4,816
      Property, plant and equipment additions             (5,074)         (267)          (46)                     (5,387)
                                                         -------       -------       -------       -------       -------

        Net cash used in investing activities               (258)         (267)          (46)         --            (571)
                                                         -------       -------       -------       -------       -------

Cash flows provided by (used in) financing activities:
      Borrowing under note payable                         5,000          --            --                         5,000
      Principal borrowings under
          revolving credit agreement, net                  3,000          --            --                         3,000
      Principal payments under mortgages                    (180)         --             (19)                       (199)
      Payment of capital lease obligations                   (55)         --            --                           (55)
      Proceeds from the exercise of stock options            201          --            --                           201
      Acquisition of treasury stock                         (429)         --            --                          (429)
                                                         -------       -------       -------       -------       -------

        Net cash provided by (used in)
          financing activities                             7,537          --             (19)         --           7,518
                                                         -------       -------       -------       -------       -------

Effect of exchange rate changes on cash                     --            --             (18)            2           (16)
                                                         -------       -------       -------       -------       -------

Net increase (decrease) in cash
  and cash equivalents                                       595          (857)          176          --             (86)

Cash and cash equivalents at beginning of year             1,750          (254)          617                       2,113
                                                         -------       -------       -------       -------       -------

Cash and cash equivalents at end of year                 $ 2,345       $(1,111)      $   793       $  --         $ 2,027
                                                         =======       =======       =======       =======       =======

</TABLE>






                                      -28-
<PAGE>





(15) SUBSEQUENT EVENT

Mr. William McMenemy has informed the Company of his intention to resign from
his position as President and Chief Executive Officer, effective August 19,
2005. Mr. Charles Hinkaty, currently Chief Operating Officer, will assume the
position of President and Chief Executive Officer upon the resignation.

As a result of the plan for process improvements and cost reductions being
developed by the Company in conjunction with the Synergetics Installations
Worldwide, Inc. consulting group, a workforce reduction program will be
implemented in the third quarter.



















                                      -29-
<PAGE>



Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


     RECENT DEVELOPMENTS

     Mr. William McMenemy has informed the Company of his intention to resign
     from his position as President and Chief Executive Officer, effective
     August 19, 2005. Mr. Charles Hinkaty, currently Chief Operating Officer,
     will assume the position of President and Chief Executive Officer upon the
     resignation.

     As a result of the plan for process improvements and cost reductions being
     developed by the Company in conjunction with the Synergetics Installations
     Worldwide, Inc. consulting group, a workforce reduction program will be
     implemented in the third quarter which is expected to result in annualized
     savings of approximately $5.7 million.


     On July 26, 2005, the Company entered into a First Amendment to the Credit
     Agreement dated as of January 27, 2005, among DLI Holding II Corp., Del
     Laboratories, Inc., the several banks and other financial institutions or
     entities from time to time parties to the Credit Agreement, J.P. Morgan
     Securities, Inc. and Bear Stearns & Co. Inc. as joint lead arrangers, Bear
     Stearns Corporate Lending Inc., as syndication agent, Deutsche Bank
     Securities inc., as documentation agent and as co-agent, and JP Morgan
     Chase Bank, N.A. as administrative agent.


     The lenders have agreed to amend certain provisions of the Credit Agreement
     to, among other things, (i) revise the definition of Consolidated EBITDA to
     include consultation fees and expense reimbursements associated with
     implementing process improvements and cost reductions being developed by
     the Company in conjunction with the Synergetics Installations Worldwide,
     Inc. consulting group; (ii) provide for an increase in the maximum leverage
     ratio; and (iii) increase the rates set forth in the definitions of
     Applicable Margin and Pricing grids.


     OVERVIEW

     Del Laboratories, Inc. is a fully integrated manufacturing and marketing
     company operating in two major segments of the packaged consumer products
     business: cosmetics and OTC pharmaceuticals. Each of our marketing
     divisions is responsible for branded lines fitting into one of these two
     general categories and develops its own plans and goals consistent with its
     operating environment and our corporate objectives.


     The Company owns a portfolio of highly recognized branded products, which
     are easy to use, competitively priced and trusted by consumers and
     retailers. As reported by ACNielsen Corporation ("ACNielsen") or
     Information Resources, Inc. ("IRI"), many of our brands have leading market
     positions in their product categories. In our cosmetics segment, the Sally
     Hansen(R) brand is the number one brand in the mass market nail care
     category with market leadership positions in nail enamel, nail treatment
     and bleaches and depilatories. The La Cross(R) brand is a leader in nail
     and beauty implements, providing a line of high quality beauty implements
     including nail clippers, files, scissors, tweezers and eyelash curlers.
     N.Y.C. New York Color(R), was launched in 1999. This highly recognizable
     brand of value cosmetics offers a complete collection of high quality
     products at opening price points. In our OTC pharmaceutical segment, we
     believe Orajel(R) is the number one oral analgesic in the United States
     (based on market share), and the number one pharmacist recommended brand in
     the teething segment. The Orajel(R) family of products has been developed
     with formulations specifically targeted at distinct oral pain and infant
     care indications. Our Dermarest(R) brand is the most complete line of
     non-prescription products for relief of psoriasis and eczema and is the
     market share leader in the psoriasis/eczema treatment category.




     We believe that we have outstanding customer relationships with a
     diversified group of prominent retailers across multiple distribution
     channels including mass merchandisers, drug chains, drug wholesalers and
     food retailers and wholesalers. The Company has a strong track record of
     developing innovative new products and successful brand extensions. Our
     in-house research and development departments focus on product development,
     clinical and regulatory affairs and quality control.





                                      -30-
<PAGE>






MERGER TRANSACTION

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company ("Kelso"), was merged (the "Merger") with and into
Del Laboratories, Inc. a Delaware corporation ("Del"), pursuant to an Agreement
and Plan of Merger, dated as of July 1, 2004 (the "Merger Agreement"), by and
among Sub, Del and DLI Holding Corp., a Delaware corporation ("Holding"). Under
the terms of the Agreement and Plan of Merger dated July 1, 2004, each
outstanding share of Del Labs common stock and each outstanding stock option was
converted into the right to receive $35 per share in cash. The total transaction
was valued at approximately $483 million, including the repayment of
indebtedness of approximately $69 million. Following the Merger, Del ceased to
be a publicly traded company and is now a wholly-owned subsidiary of DLI Holding
II Corp., a Delaware corporation ("Holding II"), which, in turn, is owned by
Holding and is an indirect, wholly-owned subsidiary of DLI Holding LLC, a
Delaware limited liability company affiliated with Kelso ("DLI LLC").

In connection with the Merger, certain investment partnerships affiliated with
Kelso invested approximately $136.0 million in DLI LLC, as a result of which
such entities now own approximately 98.5% of the interests of DLI LLC. Messrs.
Alstodt, Hinkaty and McMenemy, members of Del's senior management prior to and
following the Merger ("Continuing Investors") invested, in the aggregate,
$60,000 in DLI LLC for approximately 0.1% of the interests in DLI LLC. A third
party investor invested $2,000,000 in DLI LLC for the balance of the interests
in DLI LLC. The foregoing parties entered into a limited liability company
agreement relating to their ownership of interests in DLI LLC.

Pursuant to separate Exchange Agreements, dated January 27, 2005 (the "Exchange
Agreements"), the Continuing Investors elected to exchange, immediately prior to
the effective time of the Merger, options to purchase Del common stock for
options to purchase Holding common stock, constituting approximately 6.6% of the
fully diluted share capital of Holding immediately after the Merger. The
estimated fair value of the exchange options was included in the calculation of
the aggregate purchase price.

With the merger completed, William McMenemy was named President and Chief
Executive Officer, Charles J. Hinkaty was named Chief Operating Officer, Harvey
Alstodt was named President of Global Business, and Enzo J. Vialardi remains
Executive Vice President and Chief Financial Officer. With the closing of the
transaction, Dan K. Wassong retired as the Company's Chairman, President and
Chief Executive Officer.

Also following the completion of the Merger, affiliates of Kelso have the right
to designate, directly or indirectly, the board of directors of each of DLI LLC,
Holding, Holding II and Del. Del's board of directors is initially comprised of
Messrs. Alstodt, Hinkaty and McMenemy, members of Del's senior management prior
to and following the Merger, and Messrs. Berney and Moore of Kelso.

In anticipation of the Merger, Sub issued in a private placement offering $175.0
million of 8% Senior Subordinated Notes due 2012. The notes were issued at
99.34% which provided the Company with proceeds of $173.8 million. The notes and
all related obligations were assumed by Del upon the consummation of the Merger.
The notes are guaranteed by certain of the existing domestic subsidiaries of
Del.

Immediately prior to the Merger, Sub also entered into a credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, Bear Stearns Corporate
Lending Inc., as syndication agent, Deutsche Bank Securities Inc., as co-agent
and documentation agent, and the lenders party thereto from time to time,
providing for aggregate maximum borrowings of $250.0 million consisting of a
term loan facility in an aggregate principal amount of $200.0 million (all of
which amount was drawn in connection with the Merger,) and a revolving credit
facility, providing for up to $50.0 million of revolving loans outstanding at
any time, which remained undrawn at the closing of the Merger. The obligations
under the credit agreement were assumed by Del upon the consummation of the
Merger. The obligations of Del under the credit agreement are guaranteed by
Holding II and certain of the domestic subsidiaries of Del. The senior credit
facilities and the guarantees thereof are secured by a pledge of the capital
stock of Del by Holding II, pledges of certain of the capital stock of the
domestic subsidiaries of Del and the effective pledge of 65% of the capital
stock of certain foreign subsidiaries of Del, and liens on substantially all of
the tangible and intangible assets of Del and guarantors, subject to certain
exceptions.






                                      -31-
<PAGE>

ACCOUNTING FOR THE TRANSACTION

Pursuant to the merger, all of the Company's outstanding common stock was
acquired for $35 a share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $414.0 million, comprised of $377.2 million for the
acquisition of the outstanding shares and options exercised, $4.5 million
representing the fair value of the options exchanged, $18.5 million in severance
payments, $1.0 million of prepayment penalties and $12.8 million of transaction
related costs. The acquisition, as described above, has been accounted for in
accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standard ("SFAS") 141, "Business Combinations".

The merger transaction was completed on January 27, 2005. Since the actual
results between the period January 28, 2005 and January 31, 2005 were not
material to the Successor period of the quarter or to the projected annual
results, the Company has utilized January 31, 2005 as the acquisition date. The
merger transaction was accounted for in accordance with SFAS No. 141, "Business
Combinations." As a result of the merger, our capital structure and our basis of
accounting differ from those prior to the merger transaction. Our financial data
in respect of all reporting periods subsequent to January 31, 2005 reflect the
merger under the purchase method of accounting. Therefore, our financial data
for the period before the merger (which we refer to as the Predecessor Period)
generally will not be comparable to our financial data for the period after the
merger (which we refer to as the Successor Period). As a result of the merger,
our consolidated statement of operations for the Successor Period includes
amortization expense related to debt issuance costs and management fees that did
not exist prior to the acquisition. Further, as a result of purchase accounting,
the fair values of our inventories, intangible assets, and fixed assets on the
date of the merger became their new "cost" basis. Accordingly, the cost of
inventories and the amortization of intangible assets with definite lives and
the depreciation of fixed assets used for the Successor Period are based upon
their newly established cost basis. Additionally, the fair value of our pension
assets and liabilities were adjusted as a result of purchase accounting;
therefore pension expense for the Successor Period is based upon the newly
established fair values. Other effects of purchase accounting in the Successor
Period are not considered significant.



INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement establishes financial accounting
and reporting standards for the effects of income taxes that result from an
enterprise's activities during the current and preceding years. It requires an
asset and liability approach for financial accounting and reporting of income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The realization of tax benefits of deductible temporary differences and
operating loss or tax credit carry-forwards will depend on whether the Company
will have sufficient taxable income of an appropriate character within the
carry-back and carry-forward period permitted by the tax law to allow for
utilization of the deductible amounts and carry-forwards. Without sufficient
taxable income to offset the deductible amounts and carry-forwards, the related
tax benefits would expire unused. A valuation allowance is recorded when
management determines that it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies, among other factors, in making this assessment. In
the event the Company were to determine that it would not be able to realize
some portion or all of its deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to earnings in the period such
determination was made. There was no valuation allowance as of the Successor
Period June 30, 2005, the Predecessor Period January 31, 2005, or the
Predecessor Period December 31, 2004 as the Company believes it is more likely
than not that the deferred tax assets will be realized.




                                      -32-
<PAGE>


RESULTS OF OPERATIONS

As discussed above in "Accounting for the Transaction", our financial data in
respect of all reporting periods subsequent to January 31, 2005 reflect the
purchase method of accounting. Our financial data for the Predecessor Period
generally will not be comparable to our financial data for the Successor Period.


THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004

The Company's net sales for the second quarter ended June 30, 2005 were $108.9
million, an increase of $6.0 million, or 5.8% compared to net sales of $102.9
million for the three months ended June 30, 2004.

The Cosmetic segment of the business generated net sales for the second quarter
ended June 30, 2005 of $86.9 million, an increase of $4.8 million, or 5.9%
compared to net sales of $82.1 million for the second quarter ended June 30,
2004. As reported by ACNielsen, the Sally Hansen brand remains the number one
brand in the mass market nail care category with a 25.7% share of market for the
quarter. In nail color, the Sally Hansen brand increased its number one position
with a 31.5% share of market. Sally Hansen also increased its number one market
share position in nail treatment with a 54.5% share of market for the quarter.
In bleaches and depilatories, the Sally Hansen brand increased its number one
market share position to 29.3% for the quarter, as reported by ACNielsen.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the second quarter ended June 30, 2005 of $22.0 million, an increase of $1.1
million, or 5.3% compared to net sales of $20.9 million for the second quarter
ended June 30, 2004. Orajel, the core brand of the Pharmaceutical segment
increased its leadership position in the oral analgesics category with a 30.5%
share of market for the quarter, as reported by Information Resources, Inc. In
addition, the Dermarest brand increased its leadership position in the
over-the-counter psoriasis/eczema treatment category with a 31.8% share of
market for the quarter, as reported by Information Resources, Inc.

Cost of goods sold for the second quarter ended June 30, 2005 was $64.5 million,
or 59.2% of net sales, compared to $52.4 million, or 50.9% of net sales for the
second quarter ended June 30, 2004. Cost of goods sold for the second quarter of
2005 includes costs of approximately $4.5 million, or 4.2% of net sales related
to the increase in inventories to fair value as a result of purchase accounting.

Selling and administrative expenses for the second quarter ended June 30, 2005
was $44.3 million, or 40.6% of net sales, compared to $43.0 million, or 41.8% of
net sales for the second quarter ended June 30, 2004.

Merger expenses for the second quarter ended June 30, 2005 was $724 thousand,
compared to $216 thousand for the second quarter ended June 30, 2004. The merger
expenses are primarily related to legal and advisory fees and expenses incurred
in connection with the merger transaction.

Net interest expense for the second quarter ended June 30, 2005 of $6.9 million
is primarily attributable to interest incurred on $200.0 million of Senior Notes
and $175.0 million of 8% Senior Subordinated Notes issued on January 27, 2005 in
connection with the merger transaction. Net interest expense for the second
quarter ended June 30, 2004 of $836 thousand is primarily related to outstanding
borrowings of the Predecessor Company under its 9.5% senior notes, its revolving
credit facility and outstanding mortgages on the North Carolina and the Barrie,
Ontario facilities.

Income taxes for the second quarter ended June 30, 2005 of $2.6 million was
based on the Company's expected effective tax rate of (3.6%) for the period
February 1, 2005 to December 31, 2005. The expected effective tax rate of (3.6%)
is principally the result of taxable income of foreign subsidiaries, which is
taxed at higher rates than the U.S., offset by a taxable loss in the U.S.
primarily due to the amortization of the inventory step-up and other merger
expenses.



                                      -33-
<PAGE>



Income taxes for the second quarter ended June 30, 2004 of $2.4 million was
based on the Company's expected annual effective tax rate of 38.6% for 2004.

Net loss for the second quarter ended June 30, 2005 of $10.1 million is
primarily attributable to net interest expense.

Net earnings for the second quarter ended June 30, 2004 of $3.8 million are
attributable to the operating income generated by the Predecessor Company.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004

The following table sets forth the results of operations for the Successor
Period February 1, 2005 to June 30, 2005, the Predecessor Period January 1, 2005
to January 31, 2005 and the Predecessor Period January 1, 2004 to June 30, 2004.
The table also sets forth the Combined Successor Period and Predecessor Period
net sales for the six months ended June 30, 2005.

<TABLE>
<CAPTION>

                                                                                      SIX MONTHS
                                                      SIX MONTHS ENDED                  ENDED
                                                       JUNE 30, 2005                 JUNE 30, 2004
                                                           ($000)                        ($000)

                                           FEB 1,2005    JAN 1, 2005                   JAN 1, 2004
                                         JUNE 30, 2005   JAN 31, 2005                 JUNE 30, 2004
                                         -------------   ------------                 -------------

                                            SUCCESSOR     PREDECESSOR                  PREDECESSOR
                                             PERIOD         PERIOD        COMBINED        PERIOD

Net Sales
<S>                                         <C>            <C>            <C>            <C>
      Cosmetic segment                      $ 142,317      $  14,756      $ 157,073      $ 147,316
      Pharmaceutical segment                   37,504          3,450         40,954         38,697
                                            ---------      ---------      ---------      ---------
Total net sales                               179,821         18,206        198,027        186,013

Cost of goods sold                            103,225          9,718                        93,585
Selling and administrative expenses            73,163         11,475                        82,729
Severance expenses                               --             --                               3
Merger expenses                                 4,651         18,974                           216
                                            ---------      ---------                     ---------

Operating income (loss)                        (1,218)       (21,961)                        9,480

Other income (expense):
    Loss on sale of building and land            --             --                             (41)
    Interest expense, net                     (11,732)          (264)                       (1,860)
    Other income (expense), net                    77           (232)                         (353)
                                            ---------      ---------                     ---------

Earnings (loss) before income taxes           (12,873)       (22,457)                        7,226
Provision for (benefit from) income taxes         463        (24,434)                        2,789
                                            ---------      ---------                     ---------
Net earnings (loss)                         $ (13,336)     $   1,977                     $   4,437
                                            =========      =========                     =========


</TABLE>


The Company's net sales for the six months ended June 30, 2005 were $198.0
million, an increase of $12.0 million, or 6.5% compared to net sales of $186.0
million for the six months ended June 30, 2004.






                                      -34-
<PAGE>



The Cosmetic segment of the business generated net sales for the six months
ended June 30, 2005 of $157.1 million, an increase of $9.8 million, or 6.6%
compared to net sales of $147.3 million for the six months ended June 30, 2004.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the six months ended June 30, 2005 of $41.0 million, an increase of $2.3
million, or 5.8% compared to net sales of $38.7 million for the six months ended
June 30, 2004.

Cost of goods sold for the Successor Period February 1, 2005 to June 30, 2005
was $103.2 million, or 57.4% of net sales. Cost of goods sold for the period
includes approximately $5.6 million, or 3.1% of net sales related to the
increase in inventories to fair value as a result of purchase accounting.

Cost of goods sold for the Predecessor Period January 1, 2004 to June 30, 2004
was $93.6 million, or 50.3% of net sales.

Selling and administrative expenses for the Successor Period February 1, 2005 to
June 30, 2005 was $73.2 million, or 40.7% of net sales.

Selling and administrative expenses for the Predecessor Period January 1, 2004
to June 30, 2004 was $82.7 million, or 44.5% of net sales.

Merger expenses for the Successor Period February 1, 2005 to June 30, 2005 of
$4.7 million are primarily related to change of control payments and legal and
advisory fees and expenses incurred in connection with the merger transaction.

Net interest expense for the Successor Period February 1, 2005 to June 30, 2005
of $11.7 million was primarily attributable to interest incurred on $200.0
million of Senior Notes and $175.0 million of 8% Senior Subordinated Notes
issued on January 27, 2005 in connection with the merger transaction.

Net interest expense for the Predecessor Period January 1, 2004 to June 30, 2004
of $1.9 million was primarily attributable to outstanding borrowings of the
Predecessor Company under its 9.5% senior notes, its revolving credit facility
and outstanding mortgages on the North Carolina and the Barrie, Ontario
facilities.

Income taxes for the Successor Period February 1, 2005 to June 30, 2005 of $0.5
million was based on the Company's expected effective tax rate of (3.6%) for the
period February 1, 2005 to December 31, 2005. The expected effective tax rate of
(3.6%) is principally the result of taxable income of foreign subsidiaries,
which is taxed at higher rates than the U.S., offset by a taxable loss in the
U.S. primarily due to the amortization of the inventory step-up and other merger
expenses.

Income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24.4 million was due to the recording of an anticipated federal income
tax refund of approximately $11.4 million attributable to the utilization of a
net operating loss carry-back, the recording of deferred tax assets of
approximately $13.3 million attributable to net operating loss carry-forwards,
and the recording of approximately $0.3 million of deferred tax expense related
to timing differences.

Income taxes for the Predecessor Period January 1, 2004 to June 30, 2004 of $2.8
million was based on the Company's expected annual effective tax rate of 38.6%
for 2004.

Net loss for the Successor period February 1, 2005 to June 30, 2005 of $13.3
million is primarily attributable to net interest expense.

Net earnings for the Predecessor period January 1, 2004 to June 30, 2004 of $4.4
million are primarily attributable to the operating income generated by the
Predecessor Company.

The Company believes that general inflation has had no significant impact on
earnings from operations during the last three years.



                                      -35-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Our liquidity needs arise primarily from debt service on our substantial
indebtedness and from funding of our capital expenditures, ongoing operating
costs and working capital. In connection with the Merger transaction,
substantially all of our then outstanding indebtedness was redeemed, repurchased
or otherwise repaid and replaced with borrowings under our senior credit
facilities and indebtedness under the notes.

The following financing transactions were entered into in connection with the
Merger:

o    the closing of new senior credit facilities which provide for aggregate
     maximum borrowings of $250.0 million consisting of $200.0 million in a term
     loan and up to $50.0 million in borrowings under a revolving credit
     facility;

o    the issuance and sale of $175 million in aggregate principal amount 8%
     senior subordinated notes due 2012;

o    the redemption of all of our outstanding 5.56% senior notes due April 15,
     2011, including payment of accrued interest and a related prepayment
     premium;

o    the repayment of all outstanding principal and accrued interest under our
     prior credit facilities and termination of all commitments thereunder; and

o    the repayment of the mortgage on our North Carolina facility including
     payment of accrued interest and a related prepayment premium.

We intend to fund our ongoing obligations from cash flow from operations and
borrowings under our senior credit facilities. As of June 30, 2005, we had
$379.4 million of total debt, consisting primarily of $173.9 million aggregate
principal amount of notes, $200.0 million of senior debt outstanding under the
term loan, and $5.0 million outstanding under the revolving credit facility. As
of June 30, 2005, the Company had $45.0 million available to borrow under the
revolving credit facility, subject to limitations under the senior credit
facilities.

Principal and interest payments under the senior credit facilities, together
with principal and interest payments on the notes, represent significant
liquidity requirements for us. The term loan matures in July 2011 and amortizes
in quarterly installments equal to 0.25% of the original principal amount of the
term loan, with the balance payable at maturity. The revolving credit facility
matures in January 2011.

The loans under the new credit facilities bear interest at variable rates based
upon the interest rate option elected by us. Based on management estimates, the
loans under the term loan facility will bear interest in 2005 at a weighted
average rate per annum of 6.04%. The senior subordinated notes bear interest at
a rate of 8.0%. At June 30, 2005, borrowings of $5.0 million were outstanding
under the revolving credit facility. Based on the prevailing interest rates at
August 1, 2005, interest expense in 2005 is expected to be approximately $27.3
million, including approximately $2.1 million of non-cash amortization of
deferred debt issuance costs. Cash paid for interest during the Successor Period
was approximately $4.2 million.

Borrowings under our senior credit facilities are subject to certain conditions
and limitations described below. The indenture governing the notes offered
hereby, and our senior credit facilities, contain significant financial and
operating covenants, including prohibitions on our ability to incur certain
additional indebtedness or to pay dividends, and restrictions on our ability to
make capital expenditures. Our senior credit facilities also require that we
maintain certain financial ratios and also contain borrowing conditions and
customary events of default, including nonpayment of principal or interest,
violation of covenants, inaccuracy of representations and warranties,
cross-defaults to other indebtedness, bankruptcy and other insolvency events.

We expect that our total capital expenditures will be approximately $12.0
million in 2005, which will be used primarily for machinery and equipment.





                                      -36-
<PAGE>


We expect that cash provided from operations and available borrowings under our
senior credit facilities will provide sufficient working capital to operate our
business, to make expected capital expenditures and to meet foreseeable
liquidity requirements, including debt service on the notes. We cannot assure
you, however, that our business will, in fact, generate sufficient cash flows or
that future borrowings will, in fact, be available in an amount sufficient to
enable us to service our debt, including the notes, or to fund our other
liquidity needs.




CREDIT AGREEMENT FINANCIAL COVENANTS

Our senior credit facilities contain a number of covenants that, among other
things, limit or restrict the ability of the borrower and its subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
prepay other indebtedness, including the notes, make dividends, create liens,
make equity or debt investments, make acquisitions, modify the terms of the
indenture under which the notes are issued, engage in mergers or make capital
expenditures, or engage in certain transactions with affiliates. In addition,
under our senior credit facilities, the borrower is required to comply with
specified financial covenants, including a maximum leverage ratio of specified
debt to Consolidated EBITDA and a minimum coverage ratio of Consolidated EBITDA
to specified interest expense.

On July 26, 2005, the Company entered into a First Amendment to the Credit
Agreement dated as of January 27, 2005, among DLI Holding II Corp., Del
Laboratories, Inc., the several banks and other financial institutions or
entities from time to time parties to the Credit Agreement, J.P. Morgan
Securities, Inc. and Bear Stearns & Co. Inc. as joint lead arrangers, Bear
Stearns Corporate Lending Inc., as syndication agent, Deutsche Bank Securities
inc., as documentation agent and as co-agent, and JP Morgan Chase Bank, N.A. as
administrative agent.

The Lenders have agreed to amend certain provisions of the Credit Agreement to,
among other things, (i) revise the definition of Consolidated EBITDA to include
consultation fees and expense reimbursements associated with implementing
process improvements and cost reductions being developed by the Company in
conjunction with the Synergetics Installations Worldwide, Inc. consulting group;
(ii) provide for an increase in the maximum leverage ratio; and (iii) increase
the rates set forth in the definitions of Applicable Margin and Pricing grids.

Borrowings under the senior credit facilities are a key source of our liquidity.
Our ability to borrow under the senior credit facilities is dependent on, among
other things, our compliance with the financial covenants contained therein.
Failure to comply with these tests would result in a violation of the credit
agreement for the senior credit facilities and, absent a waiver or an amendment
from the lenders under such agreement, permit the acceleration of all
outstanding borrowings under such credit agreement.

The test periods for compliance with the financial covenants in the credit
agreement for our senior credit facilities will begin on June 30, 2005. The
financial covenants specify, among other things, the following requirements for
each fiscal quarter ended during the following test periods:

<TABLE>
<CAPTION>
                                                                            Consolidated EBITDA to
                                             Consolidated Total Debt to      Consolidated Interest
                                                Consolidated EBITDA                Coverage
                                                   Leverage Ratio               Expense Ratio
                   TEST PERIOD                     NOT MORE THAN                 NOT LESS THAN

<S>                                                 <C>                          <C>
 June 30, 2005 - September 30, 2005                 6.50 to 1.00                 2.00 to 1.00
 December 31, 2005 -  September 30, 2006            5.75 to 1.00                 2.00 to 1.00
 December 31, 2006 -  September 30, 2007            4.75 to 1.00                 2.50 to 1.00
 December 31, 2007 -  September 30, 2008            4.50 to 1.00                 2.75 to 1.00
 December 31, 2008 -  September 30, 2009            4.00 to 1.00                 3.00 to 1.00
 December 31, 2009 -  June 30, 2011                 3.50 to 1.00                 3.00 to 1.00

</TABLE>





                                      -37-
<PAGE>




"Consolidated EBITDA," as that term is defined in the First Amendment to our
senior credit facilities and used for purposes of the financial covenants,
consists of our consolidated net income, adjusted to exclude income tax expense,
interest expense, and depreciation and amortization, as well as certain other
items and expenses, including amortization of intangibles, extraordinary,
unusual or non-recurring gains or losses, consultation fees and expense
reimbursements associated with implementing process improvements and cost
reductions being developed by the Company in conjunction with the Synergetics
Installations Worldwide, Inc. consulting group, certain non-cash charges or
expenses deducted in determining net income, certain cash restructuring charges,
loss or gain associated with the sale or write down of assets not in the
ordinary course of business, the amount of any net minority expense, and certain
losses relating to the disposition of excess or surplus inventory. In addition,
for the relevant periods prior to the closing of the transactions, the
determination of Consolidated EBITDA gives effect to supplemental adjustments
for our expected cost savings. The senior credit facilities further provide that
Consolidated EBITDA is deemed to be $10.7 million, $16.5 million, $22.3 million
and $22.1 million, respectively, for the fiscal quarters ended March 31, 2004,
June 30, 2004, September 30, 2004 and December 31, 2004 and that, for the fiscal
quarter ending March 31, 2005, Consolidated EBITDA will be increased by $1.6
million as an allowance for anticipated cost savings identified by Kelso.

"Consolidated EBITDA" as defined under the First Amendment to the credit
agreement for the senior credit facilities is not the same as "Consolidated
EBITDA" as used in the indenture under which the notes are issued. The term
"Consolidated EBITDA" is used in the indenture as part of the calculation of the
term "Consolidated Coverage Ratio", which is used for a number of purposes,
including determining our ability to incur additional indebtedness.


OPERATING ACTIVITIES

Net cash used in operating activities for the Successor Period February 1, 2005
to June 30, 2005, of $33.3 million was principally due to an increase in
accounts receivable of $17.8 million and a decrease of $13.4 million in accrued
liabilities. The decrease in accrued liabilities is primarily related to the
payment of $18.5 million under a separation agreement with the former Chairman
and a decrease in accrued advertising of $3.2 million, partially offset by an
increase of approximately $6.4 million of accrued interest expense related to
the new borrowings incurred in connection with the merger transaction.

Net cash provided by operating activities for the Predecessor Period January 1,
2005 to January 31, 2005 of $0.2 million was primarily due to a decrease in
accounts receivable of $6.0 million, partially offset by an increase in
inventories of $6.1 million. The increase in accrued liabilities of $21.7
million is primarily related to $18.5 million for a payment due under a
separation agreement with the former Chairman and approximately $2.8 million for
advertising and promotion. The increase in income taxes receivable/payable of
$11.6 million is primarily related to the recording of an anticipated federal
income tax refund of approximately $11.4 million attributable to the utilization
of a net operating loss carry-back. The recording of deferred tax assets of
approximately $13.0 million is primarily attributable to net operating loss
carry-forwards.

Credit Agreement EBITDA as presented herein is a financial measure that is used
in the credit agreement for our Senior Secured Credit Facility. Credit Agreement
EBITDA is not a defined term under U.S. GAAP and should not be considered as an
alternative to operating income or net income as a measure of operating results
or cash flows as a measure of liquidity. Credit Agreement EBITDA differs from
the term "EBITDA" as it is commonly used. Credit Agreement EBITDA generally is
defined as consolidated net income before consolidated net interest expense,
consolidated income taxes, consolidated depreciation and amortization, other
non-cash charges deducted in determining consolidated net income (loss),
extraordinary, unusual or non-recurring items and certain credit agreement
add-backs during the first twelve months .






                                      -38-
<PAGE>





The calculation of Credit Agreement EBITDA for the periods indicated is set
forth below.
<TABLE>
<CAPTION>

                                Qtr 3      Qtr 4       Qtr 1        Qtr 2
                                 2004       2004        2005         2005       Total

<S>                             <C>        <C>        <C>         <C>         <C>
Net income                      $   --     $   --     $ (1,245)   $(10,114)   $(11,359)
Income tax provision                --         --      (26,537)      2,566     (23,971)
Interest expense, net               --         --        5,114       6,882      11,996
Depreciation and Amortization       --         --        5,153       5,418      10,571
Extraordinary, unusual or
   or non-recurring items           --         --       23,939       5,265      29,204
Other                               --         --          266         380         646
Scheduled EBITDA per credit
   agreement                      22,300     22,100        --          --       44,400
Credit agreement add backs          --         --        1,600         --        1,600
                                --------   --------    --------    --------   --------


      Credit Agreement EBITDA   $ 22,300   $ 22,100   $  8,290    $ 10,397    $ 63,087
                                ========   ========   ========    ========    ========
</TABLE>






INVESTING ACTIVITIES

Net cash used in investing activities of $380.2 for the Successor Period
February 1, 2005 to June 30, 2005 was primarily due to $377.2 million used for
the purchase of outstanding common stock and stock options of Del Laboratories,
Inc. in connection with the merger transaction.

Net cash used in investing activities for the Predecessor Period January 1, 2005
to January 31, 2005 of $0.8 million was primarily related to capital spending
for tooling, plates & dies, and manufacturing machinery and equipment.




FINANCING ACTIVITIES

Net cash provided by financing activities for the Successor Period February 1,
2005 to June 30, 2005 of $417.3 million was primarily due to proceeds of $200.0
million received from the issuance of the term loan, proceeds of $173.8 million
received from the issuance of $175.0 million of 8% Senior Subordinated Notes at
99.34%, proceeds of approximately $138.2 million contributed by affiliates of
Kelso, the Continuing Investors and a third party investor and proceeds of $5.0
million from borrowings under the revolving credit agreement. Proceeds of $69.3
million were used to repay existing debt, $29.3 million was used to pay
financing, legal, advisory, accounting and certain other fees incurred in
connection with the merger transaction, and $1.0 million was used to reduce the
outstanding principal under the term loan.

Net cash used in financing activities for the Predecessor Period January 1, 2005
to January 31, 2005 of approximately $0.9 million was primarily to reduce a
portion of the outstanding balance on the revolving credit agreement.

The Company does not use any off-balance sheet financing arrangements.







                                      -39-
<PAGE>

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS

In order to aggregate all contractual obligations as of June 30, 2005, the
Company has included the following table:
<TABLE>
<CAPTION>

                                                           PAYMENTS DUE BY PERIOD
                                                                  ($000)

                                               LESS        1 - 2     2 - 3       3 - 5     AFTER 5
                                    TOTAL      1 YEAR      YEARS     YEARS       YEARS      YEARS

<S>                                 <C>        <C>        <C>        <C>        <C>        <C>
Senior subordinated notes           $175,000   $   --     $   --     $   --     $   --     $175,000
Term loan facility                   199,000      2,000      2,000      2,000      4,000    189,000
Revolving credit agreement             5,000       --         --         --         --        5,000
Mortgage on land and buildings         1,215         52         55         58      1,050       --
Capital leases                           268        124        133         11       --         --
Operating leases                      32,249      4,133      3,713      3,332      6,118     14,953
                                    --------   --------   --------   --------   --------   --------

Total contractual obligations (a)   $412,732   $  6,309   $  5,901   $  5,401   $ 11,168   $383,953
                                    ========   ========   ========   ========   ========   ========


</TABLE>

(a) The Company expects to contribute approximately $4.0 million in fiscal year
2005 to fund its pension plans. These expected pension contributions are not
included in the above table.





                                      -40-
<PAGE>












DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company makes estimates and assumptions in the preparation of its financial
statements in conformity with U.S. generally accepted accounting principles.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results of operations and which require management's most difficult and
subjective judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.


BUSINESS ACQUISITIONS

The Company accounts for acquired businesses using the purchase method of
accounting which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. Our
consolidated financial statements and results of operations reflect an acquired
business after the completion of the acquisition and are not restated. The cost
to acquire a business, including transaction costs, is allocated to the
underlying net assets of the acquired business in proportion to their respective
fair values. Any excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill.


REVENUE RECOGNITION

The Company sells its products to chain drug stores, mass volume retailers,
supermarkets, wholesalers and overseas distributors. Sales of such products are
denominated in U.S. dollars and sales in Canada are denominated in Canadian
dollars. The Company's accounts receivable reflect the granting of credit to
these customers. The Company generally grants credit based upon analysis of the
customer's financial position and previously established buying and selling
patterns. The Company does not bill customers for shipping and handling costs
and, accordingly, classifies such costs as selling and administrative expense.
Revenues are recognized and discounts are recorded when merchandise is shipped.
Net sales are comprised of gross revenues less returns, various promotional
allowances and trade discounts and allowances. The Company allows customers to
return their unsold products when they meet certain criteria as outlined in the
Company's sales policies. The Company regularly reviews and revises, as deemed
necessary, its estimates of reserves for future sales returns based primarily
upon actual return rates by product and planned product discontinuances. The
Company records estimated reserves for future sales returns as a reduction of
sales, cost of sales and accounts receivable. Returned products which are
recorded as inventories are valued based on estimated realizable value. The
physical condition and marketability of the returned products are the major
factors considered by the Company in estimating realizable value. Actual
returns, as well as estimated realizable values of returned products, may differ
significantly, either favorably or unfavorably, from estimates if factors such
as economic conditions, customer inventory levels or competitive conditions
differ from expectations.


PROMOTIONAL ALLOWANCES AND CO-OPERATIVE ADVERTISING

The Company has various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities related to
the Company's products. These sales incentives offered voluntarily by the
Company to customers, without charge, that can be used in or that are
exercisable by a customer as a result of a single exchange transaction, are
recorded as a reduction of net sales at the later of the sale or the offer, and
primarily allow customers to take deductions against amounts owed to the Company
for product purchases. The Company also has co-operative advertising
arrangements with retail customers to reimburse them for all or a portion of
their advertising of the Company's products. The estimated liabilities for these
co-operative advertising arrangements are recorded as advertising expense as
incurred, or in the period the related revenue is recognized, depending on the
terms of the arrangement, and included in selling and administrative expenses,
since the Company receives an identifiable benefit from retail customers for an
amount equal to or less than the fair value of such advertising cost. These
arrangements primarily allow retail customers to take deductions against amounts
owed to the Company for product purchases. The Company regularly reviews and
revises the estimated accruals for these promotional allowance and co-operative
advertising programs. Actual costs incurred by the Company may differ
significantly, either favorably or unfavorably, from estimates if factors such
as the level and success of the retailers' programs or other conditions differ
from our expectations.




                                      -41-
<PAGE>


ACCOUNTS RECEIVABLE

In estimating the collectibility of our trade receivables, the Company evaluates
specific accounts when it becomes aware of information indicating that a
customer may not be able to meet its financial obligations due to a
deterioration of its financial condition, lower credit ratings or bankruptcy.
The Company also reviews the related aging of past due receivables in assessing
the realization of these receivables. The allowance for doubtful accounts is
determined based on the best information available to us on specific accounts
and is also developed by using percentages applied to certain receivables.


INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. The Company records a reduction to
the cost of inventories based upon its forecasted plans to sell, historical
scrap and disposal rates and the physical condition of the inventories. These
reductions are estimates, which could vary significantly, either favorably or
unfavorably, from actual requirements if future economic conditions, the timing
of new product introductions, customer inventory levels, fashion-oriented color
cosmetic trends or competitive conditions differ from our expectations.


PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS

Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful lives or the lease term. Changes in circumstances, such as
technological advances, changes to the Company's business model or changes in
the Company's capital strategy could result in the actual useful lives differing
from the Company's estimates. In those cases where the Company determines that
the useful life of property, plant and equipment should be shortened, the
Company would depreciate the net book value in excess of the salvage value, over
its revised remaining useful life, thereby increasing depreciation expense.
Factors such as changes in the planned use of equipment, fixtures, software or
planned closing of facilities could result in shortened useful lives.

The Company constructs and purchases display fixtures to be used in the stores
of its cosmetic segment retail customers to attract customer attention and to
display products available under the Company's various brands. The display is
included in inventory by the Company until it is shipped to the retail customer,
at which time it is reclassified from inventory to other assets and amortized as
a selling expense over the estimated useful life of twenty four months from date
of shipment.

Intangible assets with determinable lives and other long-lived assets, other
than goodwill, are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such asset may
not be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, the Company recognizes an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset. The estimate of cash flow is based upon, among other
things, certain assumptions about expected future operating performance. The
Company's estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions, changes
to its business model or changes in its operating performance.

Goodwill must be tested annually for impairment at the reporting unit level. The
Company's reporting units are its Cosmetic and Pharmaceutical segments. If an
indication of impairment exists, the Company is required to determine if such
reporting unit's implied fair value is less than its carrying value in order to
determine the amount, if any, of the impairment loss required to be recorded.
The annual testing performed as of January 1, 2005, indicated that there was no
impairment to goodwill.

The remaining useful lives of intangible assets subject to amortization are
evaluated each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of amortization. If the estimate of
an intangible asset's remaining useful life is changed, the remaining carrying
amount of the intangible asset should be amortized prospectively over that
revised remaining useful life.



                                      -42-
<PAGE>



PENSION BENEFITS

The Company sponsors pension and other retirement plans in various forms
covering all eligible employees. Several statistical and other factors which
attempt to anticipate future events are used in calculating the expense and
liability related to the plans. These factors include assumptions about the
discount rate, expected return on plan assets and rate of future compensation
increases as determined by the Company, within certain guidelines and in
conjunction with its actuarial consultants. In addition, the actuarial valuation
incorporates subjective factors such as withdrawal and mortality rates to
estimate the expense and liability related to these plans. The actuarial
assumptions used by the Company may differ significantly, either favorably or
unfavorably, from actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans of
participants.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement establishes financial accounting
and reporting standards for the effects of income taxes that result from an
enterprise's activities during the current and preceding years. It requires an
asset and liability approach for financial accounting and reporting of income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The realization of tax benefits of deductible temporary differences and
operating loss or tax credit carry-forwards will depend on whether the Company
will have sufficient taxable income of an appropriate character within the
carry-back and carry-forward period permitted by the tax law to allow for
utilization of the deductible amounts and carry-forwards. Without sufficient
taxable income to offset the deductible amounts and carry-forwards, the related
tax benefits would expire unused. A valuation allowance is recorded when
management determines that it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies, among other factors, in making this assessment. In
the event the Company were to determine that it would not be able to realize
some portion or all of its deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to earnings in the period such
determination was made. There was no valuation allowance as of the Successor
Period June 30, 2005, the Predecessor Period January 31, 2005, or the
Predecessor Period December 31, 2004 as the Company believes it is more likely
than not that the deferred tax assets will be realized.




                                      -43-
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share Based
Payment." Statement 123(R) requires an entity to recognize the grant-date fair
value of stock options and other equity-based compensation issued to employees
in the income statement, but expresses no preference for a type of valuation
model. Statement 123(R) sets accounting requirements for "share-based"
compensation to employees, including employee stock purchase plans and carries
forward prior guidance on accounting for awards to non-employees. In addition,
accounting for employee stock ownership plans will continue to be accounted for
in accordance with Statement of Position 93-6 and awards to most non-employee
directors will be accounted for as employee awards. Statement 123(R) is
effective for public companies as of the beginning of the first annual reporting
period that begins after June 15, 2005 and for annual periods beginning after
December 15, 2005 for non-public entities, however, early adoption is
encouraged. The Company is in the process of assessing whether the adoption of
Statement 123(R) will have an impact on the Company's consolidated financial
statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29 ("SFAS No. 153"). SFAS No. 153 addresses the
measurement of exchanges of nonmonetary assets and redefines the scope of
transactions that should be measured based on the fair value of the assets
exchanged. SFAS No. 153 is effective for nonmonetary assets exchange
transactions in fiscal periods beginning after June15, 2005. We do not believe
adoption of SFAS No. 153 will have a material impact on our consolidated
financial statements.

In November 2004, the FASB issued Statement No. 151 "Inventory Costs". Statement
No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
Statement No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is in the process of assessing
whether the adoption of Statement 151 will have an impact on the Company's
consolidated financial statements.













                                      -44-
<PAGE>





FORWARD - LOOKING STATEMENTS

Management's Discussion and Analysis of the Results of Operations and Financial
Condition and other sections of this Form 10-Q include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934 (the "Exchange Act"). All
statements other than statements of historical information provided herein are
forward-looking statements and may contain information about financial results,
economic conditions, trends, certain risks, uncertainties and other factors that
could cause actual results to differ materially from any future results implied
by such forward-looking statements. Factors that might cause such a difference
include, but are not limited to: delays in introducing new products or failure
of consumers to accept new products; actions by competitors, which may result in
mergers, technology improvement or new product introductions; the dependence on
certain national chain drug stores, food stores and mass merchandiser
relationships due to the concentration of sales generated by such chains;
changes in fashion-oriented color cosmetic trends; the effect on sales of lower
retailer inventory targets; the effect on sales of political and/or economic
conditions; the Company's estimates of costs and benefits, cash flow from
operations and capital expenditures; interest rate or foreign exchange rate
changes affecting the Company and its market sensitive financial instruments
including the Company's qualitative and quantitative estimates as to market risk
sensitive instruments; changes in product mix to products which are less
profitable; shipment delays; depletion of inventory and increased production
costs resulting from disruptions of operations at any of our manufacturing or
distribution facilities; regulatory requirements and government regulatory
action; failure to maintain satisfactory compliance with good manufacturing
practice, or GMP, requirements; foreign currency fluctuations affecting our
results of operations and the value of our foreign assets and liabilities; the
relative prices at which we sell our products and our foreign competitors sell
their products in the same market; our operating and manufacturing costs outside
of the United States; changes in the laws, regulations and policies, including
changes in accounting standards, that effect, or will effect, us in the United
States and/or abroad; and trends in the general economies. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Without limitation, use of the following words is
intended to identify forward-looking statements: "may," "will," "should,"
"expect," "anticipate," "look forward to," "estimate," "indications," "intend,"
"plan," "momentum," "believe" or "continue" or the negative thereof or other
variations thereon.


Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Securities and Exchange Commission pursuant to the Exchange Act.






                                      -45-
<PAGE>









Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our market risk sensitive instruments is the
potential loss arising from material adverse changes in interest rates and
foreign currency exchange rates.

INTEREST RATE RISK

Prior to the transactions, we did not enter into derivative type agreements
related to interest rate risk. However, our senior credit facility requires us
to enter into interest rate protection agreements to provide interest rate
protection for a minimum of 50% of our consolidated funded indebtedness for
three years. Effective March 21, 2005, we entered into an interest rate swap to
provide the required interest rate protection. The swap contract was for a
nominal amount of $12.5 million for a three-year term.

FOREIGN EXCHANGE RISK

We are subject to risk from changes in the foreign exchange rate for our foreign
subsidiaries which use foreign currency as their functional currency and is
translated into United States dollars. Such changes result in cumulative
translation adjustments which are included in shareholders' equity and in the
determination of other comprehensive income (loss). Intercompany transactions
between us and our foreign subsidiaries are recorded by the foreign subsidiaries
in their functional currency.



Item 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company evaluated, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rule 13a - 15(e) and 15d - 15(e).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of the end of the period covered by this annual report.

The Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, has evaluated the Company's internal control over
financial reporting to determine whether any changes occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting. Based on
that evaluation, there has been no such change during the period covered by this
report.

The Company is continuing to perform the systems and process evaluation testing
of its internal controls over financial reporting, as required by Section 404 of
the Sarbanes-Oxley Act, in order to allow management to report on, and our
Registered Independent Public Accounting Firm to attest to, our internal
controls over financial reporting which will be required for the fiscal year
ending December 31, 2006. As a result, the evaluation and testing continues to
require significant costs and management time. In the course of its ongoing
evaluation and testing, management has identified certain deficiencies and
implemented remediation plans or is in the process of planning remediation for
the deficiencies.






                                      -46-
<PAGE>





PART II - OTHER INFORMATION







Item 6.      EXHIBITS

     (a)  Exhibits
          Exhibit31.1    Certification of Chief Executive Officer Pursuant
                         to Section 302 of the Sarbanes-Oxley Act of 2002
          Exhibit 31.2   Certification of Chief Financial Officer Pursuant
                         to Section 302 of the Sarbanes- Oxley Act of 2002
          Exhibit 32.1   Certification of Chief Executive Officer Pursuant
                         to Section 906 of the Sarbanes- Oxley Act of 2002
          Exhibit 32.2   Certification of Chief Financial Officer Pursuant
                         to Section 906 of the Sarbanes- Oxley Act of 2002


     (b)    Reports on Form 8-K

     The Company filed a Form 8-K with the SEC, dated June 10, 2005, to report
     under Item 7.01 of that Form that a press release was issued on June 10,
     2005, announcing a voluntary recall of Orajel Toddler Yellow Manual
     Toothbrush. A copy of the press release was filed as an exhibit to the Form
     8-K.

     The Company filed a Form 8-K with the SEC, dated August 1, 2005, to report
     under Item 1.01 of that Form that the Company entered into a First
     Amendment to the Credit Agreement dated as of January 27, 2005. A copy of
     the First Amendment was filed as an exhibit to the Form 8-K.

     The Company filed a Form 8-K with the SEC, dated August 8, 2005, to report
     under Item 1.01 and Item 5.02 of that Form that the Company entered into an
     employment agreement with Joseph Sinicropi dated July 25, 2005. The Company
     also announced the retirement of Enzo J. Vialardi as Executive Vice
     President and Chief Financial Officer, effective January 31, 2006 and the
     appointment of Joseph Sinicropi as Executive Vice President and Chief
     Financial Officer, effective September 1, 2005. A copy of the employment
     agreement was filed as an exhibit to the Form 8-K.






                                      -47-
<PAGE>





                                   SIGNATURES


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



                                          DEL LABORATORIES, INC.
                                          (Registrant)



           DATE:   AUGUST 15, 2005        /S/ WILLIAM MCMENEMY
                                          --------------------
                                          William McMenemy
                                          President and
                                          Chief Executive Officer








           DATE:   AUGUST 15, 2005        /S/ ENZO J. VIALARDI
                                          --------------------
                                          Enzo J. Vialardi
                                          Executive Vice President and
                                          Chief Financial Officer









                                      -48-