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 SEPTEMBER 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 RECKSON 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)

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                               YES ( )     NO (X)

The number of shares of Common Stock, $.01 par value, outstanding of the
registrant as of November 14, 2005 was 1,000.
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES

                                      Index

Part I.   FINANCIAL INFORMATION
                                                                            Page
                                                                            ----
Item 1.   Financial Statements:

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

          Consolidated Statements of Operations for the one month
             ended January 31, 2005 (Predecessor), three and eight
             months ended September 30, 2005 (Successor) and three
             and nine months ended September 30, 2004 (Predecessor)            4

          Consolidated Statements of Cash Flows for the one month
             ended January 31, 2005 (Predecessor), eight months ended
             September 30, 2005 (Successor) and nine 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                                        32

Item 3.   Quantitative and Qualitative Disclosures About Market Risks         50

Item 4.   Controls and Procedures                                             50

Part II.  OTHER INFORMATION

Item 6.   Exhibits                                                            51

SIGNATURES                                                                    52


                                       2
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              SUCCESSOR       PREDECESSOR
                                                                                PERIOD          PERIOD
                                                                             ------------    ------------
                                                                             September 30     December 31
                                                                                 2005             2004
                                                                                 ----             ----
                                                                              (UNAUDITED)
<S>                                                                          <C>             <C>
        ASSETS

Current assets:
        Cash and cash equivalents                                            $      3,690    $      3,873
        Accounts receivable, less allowance for doubtful accounts
           of $1,781 in 2005 and $1,726 in 2004                                    83,532          78,977
        Inventories                                                               111,061         111,235
        Income taxes receivable                                                    12,313             177
        Deferred income taxes                                                       5,516           7,224
        Prepaid expenses and other current assets                                   5,616           3,508
                                                                             ------------    ------------
                   Total current assets                                           221,728         204,994

Property, plant and equipment, net                                                 49,790          46,769
Intangibles arising from acquistion, net                                          260,600           7,085
Goodwill                                                                          140,810           6,282
Other assets                                                                       30,190          13,743
Deferred income taxes                                                              26,946           6,587
                                                                             ------------    ------------
                   Total assets                                              $    730,064    $    285,460
                                                                             ============    ============

        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Current portion of long-term debt                                    $      2,182    $        501
        Accounts payable                                                           44,869          50,530
        Accrued liabilities                                                        27,727          19,734
                                                                             ------------    ------------
                   Total current liabilities                                       74,778          70,765

Long-term pension liability, less current portion                                  21,349          12,273
Deferred income taxes                                                             122,663           7,836
Deferred liability                                                                     --           1,405
8% senior subordinated notes, net of unamortized discount of $1,067               173,933              --
Long-term debt, less current portion                                              202,823          71,233
                                                                             ------------    ------------
                   Total liabilities                                              595,546         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, 1,000 shares authorized
           and issued (Successor)                                                      --              --
        Additional paid-in capital                                                145,141           9,348
        Accumulated other comprehensive income (loss)                                 781          (2,363)
        Retained earnings (deficit)                                               (11,404)        110,918
                                                                             ------------    ------------
                                                                                  134,518         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                                     134,518         121,948
                                                                             ------------    ------------
                   Total liabilities and shareholders' equity                $    730,064    $    285,460
                                                                             ============    ============
</TABLE>

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


                                       3
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    SUCCESSOR PERIODS AND PREDECESSOR PERIODS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                            NINE MONTHS ENDED
                                            --------------------------------    --------------------------------------------------
                                              SUCCESSOR        PREDECESSOR        SUCCESSOR                 PREDECESSOR
                                                PERIOD            PERIOD            PERIOD                     PERIOD
                                            --------------    --------------    --------------    --------------------------------
                                                                                                    January 1,
                                                                                  February 1,         2005 -           January 1,
                                            July 1, 2005 -    July 1, 2004 -         2005 -         January 31,          2004 -
                                             Sept 30, 2005     Sept 30, 2004     Sept 30, 2005         2005          Sept 30, 2004
                                            --------------    --------------    --------------    --------------    --------------
<S>                                         <C>               <C>               <C>               <C>               <C>
Net sales                                   $      104,792    $      115,552    $      284,613    $       18,206    $      301,565

Cost of goods sold                                  59,268            58,641           162,493             9,718           152,226
Selling and administrative expenses                 41,158            44,267           114,321            11,475           126,996
Severance expenses (note 10)                         1,978                14             1,978                --                17
Merger expenses                                        237             1,150             4,888            18,974             1,366
                                            --------------    --------------    --------------    --------------    --------------
Operating income (loss)                              2,151            11,480               933           (21,961)           20,960

Other income (expense):
   Loss on sale of building and land                    --              (105)               --                --              (146)
   Interest expense, net                            (7,297)             (849)          (19,029)             (264)           (2,708)
   Other income (expense), net                         420               373               497              (232)               19
                                            --------------    --------------    --------------    --------------    --------------
Earnings (loss) before income taxes                 (4,726)           10,899           (17,599)          (22,457)           18,125
Provision for (benefit from) income taxes           (6,658)            4,437            (6,195)          (24,434)            7,226
                                            --------------    --------------    --------------    --------------    --------------
Net earnings (loss)                         $        1,932    $        6,462    $      (11,404)   $        1,977    $       10,899
                                            ==============    ==============    ==============    ==============    ==============
</TABLE>

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


                                       4
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SUCCESSOR PERIODS AND PREDECESSOR PERIODS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              SUCCESSOR                 PREDECESSOR
                                                                                PERIOD                    PERIODS
                                                                            --------------    --------------------------------
                                                                                                January 1,
                                                                             February 1,          2005 -          January 1,
                                                                                 2005 -         January 31,         2004 -
                                                                             Sept 30, 2005         2005          Sept 30, 2004
                                                                            --------------    --------------    --------------
<S>                                                                         <C>               <C>               <C>
Cash flows provided by (used in) operating activities:
Net earnings (loss)                                                         $      (11,404)   $        1,977    $       10,899
Adjustments to reconcile net earnings (loss) to net cash
  provided by (used in) operating activities:
Depreciation and amortization                                                        8,391               748             6,209
Amortization of display fixtures                                                     6,064               764             6,552
Amortization of inventory fair value adjustment                                      8,083                --                --
Amortization of deferred financing fees and original issue discount                  1,516                20               148
Deferred income taxes                                                               (8,274)          (13,030)               --
Provision for (recovery from) doubtful accounts                                          2                26                32
Tax benefit on stock options exercised                                                  --                57               624
Loss on sale of building and land                                                       --                --               146
Other non-cash operating items                                                        (428)              219               (32)

Changes in operating assets and liabilities:
    Accounts receivable                                                            (10,339)            5,973            (5,996)
    Inventories                                                                      6,704            (6,063)           (8,334)
    Prepaid expenses and other current assets                                       (1,725)             (379)           (1,596)
    Other assets                                                                    (9,999)           (1,686)           (7,534)
    Accounts payable                                                                (6,150)              405             3,557
    Accrued liabilities                                                            (15,980)           21,720            (3,740)
    Deferred liability                                                                  --             1,367                69
    Pension liability (net)                                                            (15)             (330)              (83)
    Income taxes receivable / payable                                                 (498)          (11,598)              (89)
                                                                            --------------    --------------    --------------
          Net cash provided by (used in) operating activities                      (34,052)              190               832
                                                                            --------------    --------------    --------------
Cash flows provided by (used in) investing activities:
    Net proceeds from sale of building and land                                         --                --             4,816
    Property, plant and equipment additions                                         (4,187)             (797)           (7,637)
    Purchase of Del Laboratories, Inc.                                            (377,233)               --                --
                                                                            --------------    --------------    --------------
         Net cash used in investing activities                                    (381,420)             (797)           (2,821)
                                                                            --------------    --------------    --------------
Cash flows provided by (used in) financing activities:
    Principal borrowings (payments) under revolving credit agreement, net            5,000              (800)            3,000
    Principal payments under mortgages                                                 (40)              (23)             (289)
    Principal repayments under term loan                                            (1,500)               --                --
    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                                               (89)               --               (83)
    Proceeds from the exercise of stock options                                         --                12               244
    Acquisition of treasury stock                                                       --               (57)             (611)
                                                                            --------------    --------------    --------------
          Net cash provided by (used in) financing activities                      416,795              (868)            2,261
                                                                            --------------    --------------    --------------
Effect of exchange rate changes on cash                                                (10)              (21)              (20)
                                                                            --------------    --------------    --------------
Net increase (decrease) in cash and cash equivalents                                 1,313            (1,496)              252

Cash and cash equivalents at beginning of year                                       2,377             3,873             2,113
                                                                            --------------    --------------    --------------
Cash and cash equivalents at end of period                                  $        3,690    $        2,377    $        2,365
                                                                            ==============    ==============    ==============
Supplemental disclosures:
Cash paid for:
    Interest                                                                $       14,504    $          140    $        2,285
    Income taxes                                                            $        2,549    $          136    $        6,960

Non-cash transactions:
    Shares tendered by optionees to exercise stock options                  $           --    $          269    $        1,886
    Shares exchanged by optionees                                           $        6,940    $           --    $           --
</TABLE>

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


                                       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, L.P. ("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 $136.1 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
in DLI LLC for approximately 0.1% of the interests in DLI LLC. A third party
investor invested $2.0 million 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 was named
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. Effective August 19, 2005, Mr. McMenemy resigned as
President and Chief Executive Officer and Mr. Hinkaty assumed the position. On
August 5, 2005, Mr. Vialardi announced plans to retire effective January 31,
2006. On the same date, the Company announced that Joseph Sinicropi would assume
the role of Executive Vice President and Chief Financial Officer, effective
September 1, 2005. Mr. Vialardi will continue with the Company to assist with
the transition until his retirement.

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 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. A
registration statement under the Securities Act registering the exchange offer
for these notes became effective on May 13, 2005. On June 22, 2005, Del
completed the exchange offer of the privately placed notes for SEC registered
notes.


                                       6
<PAGE>

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.

See note 8 for information regarding the refinancing transaction completed on
October 28, 2005.

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 $416,440, comprised of $377,200 for the acquisition of
the outstanding shares and options exercised, $6,940 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                          $238,072
                Property, plant and equipment             50,212
                Intangibles arising from acquisitions    264,100
                Goodwill                                 140,810
                Other assets                              28,151
                Deferred income taxes                     19,508
                                                        --------
                   Total assets acquired                $740,853
                                                        --------
                Current liabilities                       77,686
                Long-term pension liability               22,143
                Deferred income taxes                    122,662
                Long-term debt                           373,222
                                                        --------
                   Total liabilities assumed             595,713
                                                        --------
                   Net assets acquired                  $145,140
                                                        ========

Current assets include inventories at a fair value of $124,959 which represents
an increase of $8,083 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            $ 1,538
                        Finished goods               6,545
                                                   -------
                                                   $ 8,083
                                                   =======


                                       7
<PAGE>

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 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). During the
third quarter of 2005, $2,504 was amortized. As of the end of the third quarter
of 2005 all of the inventory step up was expensed. 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 $50,212 represents an increase
of $3,472 over the acquired book value. Of the increase $4,752 is applicable to
land and buildings and $1,280 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 $140,810 is a deferred tax liability of $109,871 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.

During the third quarter ended September 30, 2005, the Company recorded an
increase in goodwill and a decrease in its deferred tax assets in the amount of
$5.8 million, to adjust its accounting for the merger transaction. The Company
also recorded an adjustment to goodwill in the amount of $2,440 to increase
goodwill and shareholders' equity, resulting from the finalization of the
valuation of the options exchanged to fair value 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.


                                       8
<PAGE>

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 inventories,
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 are 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 was 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 are 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:

<TABLE>
<CAPTION>
                                         3 Months Ended         9 Months Ended
                                          September 30           September 30
                                        2005        2004       2005        2004
                                        ----        ----       ----        ----
<S>                                   <C>         <C>        <C>         <C>
Net sales                             $104,792    $115,552   $302,819    $301,565
Earnings (loss) before income taxes   $ (4,726)   $  3,343   $(43,201)   $ (7,955)
Net earnings (loss)                   $  1,932    $  1,822   $(11,471)   $ (5,114)
</TABLE>

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

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.


                                       9
<PAGE>

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 within other assets, in 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, Del issued 1,000 shares with a $.01 par value.
Del is a wholly-owned subsidiary of Holding II, which, in turn, is owned by
Holding.

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                        Nine Months Ended
                                            -------------------------------     ----------------------------------------------
                                              Successor        Predecessor       Successor               Predecessor
                                               Period             Period           Period                   Period
                                               ------             ------           ------                   ------
                                            July 1, 2005-     July 1, 2004-     Feb 1, 2005-     Jan 1, 2005-     Jan 1, 2004-
                                            Sept 30, 2005     Sept 30, 2004     Sept 30, 2005    Jan 31, 2005     Sept 30,2004
                                            -------------     -------------     -------------    ------------     ------------
<S>                                            <C>               <C>              <C>              <C>              <C>
Net earnings (loss), as reported               $  1,932          $  6,462         $(11,404)        $  1,977         $ 10,899
Deduct:  Total stock-based employee
   compensation expense determined under
   fair value based method for all awards
   net of related tax effects                        --          $   (459)              --         $   (125)        $ (1,496)
                                               --------          --------         --------         --------         --------
Pro forma net earnings (loss)                  $  1,932          $ (6,003)        $(11,404)        $  1,852         $  9,403
                                               ========          ========         ========         ========         ========
</TABLE>

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
Successor Company did not promulgate a stock option plan and consequently did
not issue any stock options during 2005.

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


                                       10
<PAGE>

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. Since the Company has not
issued any stock options as of September 30, 2005 and the existing rollover
options are fully vested, the adoption of Statement 123(R) would not have an
impact on our consolidated financial statements. If stock options are issued in
the future, there could be an impact on our 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
                                        ------        ------
                                     September 30   December 31
                                         2005          2004
                                         ----          ----
                  Raw Materials        $ 51,588      $ 54,264
                  Work in Process         5,315         5,739
                  Finished Goods         54,158        51,232
                                       --------      --------
                                       $111,061      $111,235
                                       ========      ========

As a result of the Merger on January 27, 2005, the inventory was written up by
$8.1 million to reflect the fair value. As of September 30, 2005, the step-up
was fully amortized.

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
                                                September 30, 2005
                                                ------------------
                                         Gross
                                       Carrying     Accumulated    Net Book
                                         Value     Amortization      Value
                                         -----     ------------      -----

     Trade names                       $159,100      $     --      $159,100
     Customer relationships             105,000         3,500       101,500
                                       --------      --------      --------
                                       $264,100      $  3,500      $260,600
                                       ========      ========      ========


                                       11
<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 September
30, 2005 and 2004, respectively, and amounted to $3,500, $44 and $511 for the
2005 Successor Period, the 2005 Predecessor Period and the nine months ended
September 30, 2004. The estimated amortization expense for the fiscal year
ending December 31, 2005, is $4,812 and for the fiscal years ending December 31,
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

The Company recorded an income tax benefit and a corresponding increase in its
deferred tax assets for the Successor Period February 1, 2005 to September 30,
2005 of $6.2 million based on the Company's expected effective tax rate of 35%
for the period February 1, 2005 to December 31, 2005. The change in the expected
effective tax rate from the prior period is principally the result of increased
expected losses in the U.S. primarily due to the expenses of the refinancing
transaction (see note 8), partially off set by taxable income of foreign
subsidiaries which is taxed at higher rates than the U.S.

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 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. On October 27, 2005, the Company received
a cash tax refund of $11.8 million.

Income taxes for the Predecessor Period January 1, 2004 to September 30, 2004 of
$7.2 million was based on the Company's expected annual effective tax rate of
39.9% 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 September 30, 2005 are primarily due to amounts recorded in connection with
the merger transaction. 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. There was
no valuation allowance as of September 30, 2005 and December 31, 2004 as the
Company believes it is more likely than not that the net deferred tax assets
will be realized. Significant components of the Company's deferred tax assets
and liabilities were as follows:


                                       12
<PAGE>

                                                     September 30,  December 31,
                                                         2005           2004
                                                         ----           ----
Deferred tax assets:
   Accounts receivable, principally
      due to allowance for doubtful accounts          $      673     $    1,175

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

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

   Intangibles                                             3,628             --

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

   Tax credit and NOL carry forwards                      21,334            443

   Other                                                   1,984          1,376
                                                      ----------     ----------
Deferred tax assets                                       32,462         13,810
                                                      ----------     ----------
Deferred tax liabilities:

   SERP                                                   (2,819)            --

   Pension                                                (4,444)            --

   Property, plant and equipment,
      principally due to differences
      in depreciation methods                             (8,891)        (7,435)

   Identifiable intangibles                             (104,051)            --

   Other                                                  (2,458)          (401)
                                                      ----------     ----------
Deferred tax liabilities                                (122,663)        (7,836)
                                                      ----------     ----------
Net deferred tax assets (liabilities)                 $  (90,201)    $    5,974
                                                      ==========     ==========


                                       13
<PAGE>

8. LONG - TERM DEBT

Long - term debt consisted of the following:

                                                    Successor     Predecessor
                                                      Period         Period
                                                      ------         ------
                                                   September 30    December 31
                                                       2005           2004
                                                       ----           ----
   8% senior subordinated notes                      $173,933       $    --
   Term loan                                          198,500            --
   5.56% senior notes                                      --        24,000
   Notes payable under revolving credit agreement       5,000        34,000
   Mortgages on land and buildings                      1,268        13,408
   Obligations under capital leases                       237           326
                                                     --------       -------
                                                     $378,938       $71,734
   Less current portion                                 2,182           501
                                                     --------       -------
                                                     $376,756       $71,233
                                                     ========       =======

On January 27, 2005, the Company completed a private offering of $175.0 million
of 8% senior subordinated notes (the "Subordinated Notes") due 2012. The
Subordinated Notes were issued at 99.34% of par, resulting in net proceeds of
$173.8 million before expenses. The Subordinated Notes are guaranteed by certain
of the existing and future domestic subsidiaries of the Company. The
Subordinated 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 Subordinated Notes is payable
semi-annually on February 1 and August 1, commencing on August 1, 2005.

The Subordinated Notes 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
Subordinated 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 Subordinated 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 Subordinated
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 Subordinated 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 Subordinated 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.


                                       14
<PAGE>

Concurrently with the offering of the Subordinated Notes, the Company entered
into a credit agreement, as amended with J.P. Morgan 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. In connection with the refinancing
transactions (see below), the Company repaid all borrowings under the agreement
and the agreement was terminated. The agreement provided 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, which provided 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 was scheduled
to mature in January 2011 and the term loan facility was scheduled to mature in
July 2011. The term loan facility required scheduled quarterly principal
payments of $500.0 commencing on March 31, 2005 and 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, were subject to mandatory prepayments and reductions 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 were guaranteed by Holding II and certain of the Company's existing
and future domestic subsidiaries. The senior credit facilities and the
guarantees thereof were 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 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 were based
upon, at the Company's option, LIBOR or prime rates. The terms of the agreement
included a commitment fee based on unutilized amounts and an annual agency fee.
The agreement included covenants, that among other things, limited or restricted
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 required 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
$31 thousand at September 30, 2005. On October 28, 2005, as required by the
refinancing, (see the Refinancing Transaction below) the swap contract was
unwound and the Company received $2 thousand on November 1, 2005. In addition,
the Company was required to comply with specified financial ratios and tests.
The Company was in default of the Consolidated Total Debt to Consolidated EBITDA
leverage ratio at September 30, 2005. Due to the refinancing transaction, the
Company has continued to reflect the debt as long-term.


                                       15
<PAGE>

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.

THE REFINANCING TRANSACTION:

On October 28, 2005, the Company issued $185 million in principal amount of
senior secured floating rate notes due November 1, 2011 (the "Notes") in a
private placement. The Notes bear interest, payable quarterly, at a rate per
annum equal to Libor plus 5.0 percent. The Notes are secured by a first priority
security interest in substantially all tangible and intangible assets other than
inventory, accounts receivable, equity interests in the Company's subsidiaries
and other specifically excluded assets. The Notes hold a second priority
security interest in substantially all inventory, receivables and specified
liquid assets. Each domestic subsidiary of the Company is a guarantor under the
Notes. The Notes contain covenants that among other limitations restrict the
Company's ability to incur certain additional indebtedness, pay dividends, make
other restricted payments and investments and transfer or sell assets.

The Company intends to file a registration statement with the Securities and
Exchange Commission to register an exchange offer of the Notes for registered
notes. The Company anticipates that it may, from time to time, purchase its debt
securities through the open market.

Additionally, on October 28, 2005, the Company entered into a $75.0 million
credit agreement, maturing on October 28, 2007, (the "Revolver"), with J.P.
Morgan Chase Bank, N.A., as administrative agent. The Revolver is an asset based
facility with a first priority security interest in substantially all accounts
receivable and inventory and a second priority security interest in
substantially all tangible and intangible assets. Borrowings under the Revolver
are determined by a formula which provides eligibility of up to 60 percent of
the net book value of domestic accounts receivable and a range of 15 percent to
50 percent of domestic inventory. Borrowings under the Revolver bear interest,
initially at either Libor plus 1.75 percent or the banks base rate plus .75
percent; such margin increasing every 90 days by .50 percent, with a limit
beginning July 28, 2006 of 3.25 percent and 2.25 percent, respectively.

The Notes and the Revolver include limitations on capital spending, asset
sales, foreign subsidiary debt, and liens, among other things. In addition, the
Revolver contains a Consolidated Fixed Charge Coverage Ratio (the "Ratio") in
the event excess borrowing availability is less than $10 million on any day. The
Ratio is a measure of Consolidated EBITDA, as defined, to Consolidated Fixed
Charges.

The Revolver is guaranteed by the domestic subsidiaries and DLI Holding Corp,
the parent company.

The Company intends to replace the Revolver, with a longer term $85 million
asset based credit facility by December 31, 2005.

The Company used the net proceeds from the sale of the Notes, together with
borrowings under the Revolver, to repay all outstanding borrowings under the
prior senior Credit Agreement and to terminate all commitments thereunder.

The Company and subsidiary guarantors, the credit facility collateral agent, and
the Trustee for the Notes and the note collateral agent entered into an
Intercreditor Agreement.


                                       16
<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
                        July 1, 2005 - September 30, 2005
                        ---------------------------------

                                             Del         Del
                                          Non-Union    LaCross
                                             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
                        July 1, 2004 - September 30, 2004
                        ---------------------------------

                                             Del         Del
                                          Non-Union    LaCross
                                             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
                                           =======       ====      =====


                                       17
<PAGE>

                                Successor Period
                      February 1, 2005 - September 30, 2005
                      -------------------------------------

                                             Del         Del
                                          Non-Union    LaCross
                                             Plan        Plan       SERP
                                             ----        ----       ----
       Service Cost                        $ 2,456       $ --      $  21
       Interest Cost                         1,736         48        288
       Expected return on plan assets       (1,659)       (45)        --
       Recognized net loss                       6         --         --
                                           -------       ----      -----
       Net periodic cost                   $ 2,539       $  3      $ 309
                                           =======       ====      =====

                               Predecessor Period
                       January 1, 2005 - January 31, 2005
                       ----------------------------------

                                             Del         Del
                                          Non-Union    LaCross
                                             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
                      Nine Months Ended September 30, 2004
                      ------------------------------------

                                             Del         Del
                                          Non-Union    LaCross
                                             Plan        Plan       SERP
                                             ----        ----       ----
       Service Cost                        $ 2,310       $ --      $  39
       Interest Cost                         1,734         57        318
       Expected return on plan assets       (1,548)       (54)        --
       Recognized prior service cost            39         --        111
       Recognized net (gain) loss              573         12         (9)
                                           -------       ----      -----
       Net periodic cost                   $ 3,108       $ 15      $ 459
                                           =======       ====      =====

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 September 30, 2005, $3,190 of contributions have been
made to the Non-Union Plan. The Company presently anticipates contributing an
additional $848 to fund its Non-Union Plan for a total of $4,038.


                                       18
<PAGE>

10. SEVERANCE

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 third quarter of 2005, a provision of $4 was recorded for such earned
severance benefits. 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. During the third quarter of 2004, a provision of $12 was
recorded for such earned severance benefits, plus adjustments of $2 to the
initial accrual, which resulted in a total provision of $14. During 2005 and
2004, $(3) and $135, respectively, of relocation and other move related costs
were expensed as incurred. As of September 30, 2005, all union and non-union
employees have been terminated and $2,057 in severance benefits were paid.

On August 15, 2005, Mr. William McMenemy resigned as President and Chief
Executive Officer effective August 19, 2005 but will remain on the Board of
Directors of the Company. Also in August 2005, the Company announced a workforce
reduction program to be implemented in September 2005 to streamline the
Company's organization and reduce costs. Pursuant to Mr. McMenemy's severance
agreement and the Company's formal severance policy, a charge of $2.0 million of
severance costs and related benefits was recorded in the quarter ended September
30, 2005 of which approximately $0.7 million was paid. The balance will be paid
over 17 months. As of September 30, 2005, 55 positions, including long-term
consultants were eliminated.

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).


                                       19
<PAGE>

12. COMPREHENSIVE INCOME

The components of comprehensive income (loss) were as follows:

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                   ------------------                         -----------------
                                              Successor        Predecessor      Successor                Predecessor
                                                Period           Period           Period                    Period
                                                ------           ------           ------                    ------
                                            July 1, 2005 -   July 1, 2004 -    Feb 1, 2005 -     Jan 1, 2005 -    Jan 1, 2004
                                             Sept 30,2005     Sept 30, 2004    Sept 30, 2005     Jan 31, 2005    Sept 30, 2004
                                             ------------     -------------    -------------     ------------    -------------
<S>                                            <C>               <C>              <C>              <C>              <C>
Net earnings (loss)                            $  1,932          $  6,462         $(11,404)        $  1,977         $ 10,899
Foreign currency translation gain / (loss)          675               532              812             (346)             303
Unrealized loss on swap agreements                  (31)               --              (31)              --               --
                                               --------          --------         --------         --------         --------
Total comprehensive income (loss)              $  2,576          $  6,994         $(10,623)        $  1,631         $ 11,202
                                               ========          ========         ========         ========         ========
</TABLE>


                                       20
<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                     NINE MONTHS ENDED
                                                 ------------------                     -----------------
                                             Successor      Predecessor      Successor              Predecessor
                                              Period           Period         Period                  Period
                                              ------           ------         ------                  ------
                                          July 1, 2005 -    July 1, 2004   Feb 1, 2005 -   Jan 1, 2005 -   Jan 1, 2004 -
                                           Sept 30, 2005   Sept 30, 2004   Sept 30, 2005   Jan 31, 2005    Sept 30, 2004
                                           -------------   -------------   -------------   ------------    -------------
<S>                                           <C>             <C>             <C>             <C>             <C>
Net sales:
    Cosmetic                                  $ 83,670        $ 93,187        $225,987        $ 14,756        $240,503
    Pharmaceutical                              21,122          22,365          58,626           3,450          61,062
                                              --------        --------        --------        --------        --------
    Consolidated                              $104,792        $115,552        $284,613        $ 18,206        $301,565
                                              ========        ========        ========        ========        ========
Operating income (loss):
    Cosmetic                                  $     55        $  6,727        $ (8,507)       $(17,714)       $ 10,467
    Pharmaceutical                               2,096           4,753           9,440          (4,247)         10,493
                                              --------        --------        --------        --------        --------
    Consolidated                              $  2,151        $ 11,480        $    933        $(21,961)       $ 20,960
Other income (expense):
    Loss on sale of building and land         $     --        $   (105)       $     --        $     --        $   (146)
    Interest expense, net                     $ (7,297)       $   (849)       $(19,029)       $   (264)       $ (2,708)
    Other income (expense), net               $    420        $    373        $    497        $   (232)       $     19
                                              --------        --------        --------        --------        --------
Earnings (loss) before income taxes           $ (4,726)       $ 10,899        $(17,599)       $(22,457)       $ 18,125
                                              ========        ========        ========        ========        ========
Depreciation and amortization:
    Cosmetic                                  $  2,298        $  1,917        $  6,438        $    707        $  5,872
    Pharmaceutical                                 736             113           1,953              41             337
                                              --------        --------        --------        --------        --------
    Consolidated                              $  3,034        $  2,030        $  8,391        $    748        $  6,209
                                              ========        ========        ========        ========        ========
Amortization of display fixtures:
    Cosmetic                                  $  2,362        $  2,261        $  6,064        $    764        $  6,552
    Pharmaceutical                                  --              --              --              --              --
                                              --------        --------        --------        --------        --------
    Consolidated                              $  2,362        $  2,261        $  6,064        $    764        $  6,552
                                              ========        ========        ========        ========        ========
</TABLE>

For the three months ended September 30, 2004, severance expense of $14 was
included in the operating income of the segments, as follows: Cosmetic - $9 and
Pharmaceutical - $5. For the nine months ended September 30, 2004, severance
expense of $17 was included in the operating income of the segments, as follows:
Cosmetic - $11 and Pharmaceutical - $6. Associated with the workforce reduction
program, severance expense of $1,978 was included in the operating income of the
segments for the three and eight month Successor Periods, as follows: Cosmetic -
$1,616 and Pharmaceutical - $362.


                                       21
<PAGE>

(14) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company's obligations related to the prior credit agreement, the Revolver,
the Notes 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 Subsidiary Guarantors and the Subsidiary
Non-Guarantors are the same as those described for the Company in the Form S-4
Registration Statement.

                           CONSOLIDATING BALANCE SHEET
                                SUCCESSOR PERIOD
                               September 30, 2005

<TABLE>
<CAPTION>
                                                                              Guarantor   Non-Guarantor
                                                                 Issuer     Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                                                 ------     ------------   ------------   ------------  ------------
<S>                                                            <C>           <C>            <C>            <C>           <C>
         ASSETS

Current assets:
         Cash and cash equivalents                             $    2,635    $      (74)    $    1,129     $       --    $    3,690
         Accounts receivable                                       61,898        15,690          5,944             --        83,532
         Inventories                                               91,352         5,544         14,165             --       111,061
         Income taxes receivable                                   34,071       (22,787)         1,029             --        12,313
         Deferred income taxes                                      5,871          (355)            --             --         5,516
         Prepaid expenses and other current assets                  4,980           511            125             --         5,616
                                                               ----------    ----------     ----------     ----------    ----------
                 Total current assets                             200,807        (1,471)        22,392             --       221,728

Property, plant and equipment, net                                 43,602         2,068          4,120             --        49,790
Intercompany                                                       99,135       (84,916)       (14,219)            --            --
Intangibles arising from acquisitions, net                        170,100        90,500             --             --       260,600
Goodwill                                                          104,924        35,886             --             --       140,810
Other assets                                                       29,562            --            628             --        30,190
Note receivable                                                     6,430            --             --         (6,430)           --
Deferred income taxes                                              62,599       (35,653)            --             --        26,946
                                                               ----------    ----------     ----------     ----------    ----------
                 Total assets                                  $  717,159    $    6,414     $   12,921     $   (6,430)   $  730,064
                                                               ==========    ==========     ==========     ==========    ==========
         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                     $    2,127    $       --     $       55     $       --    $    2,182
         Accounts payable                                          39,290         3,202          2,377             --        44,869
         Accrued liabilities                                       22,373         3,544          1,810             --        27,727
         Income taxes payable                                          --            --             --             --            --
                                                               ----------    ----------     ----------     ----------    ----------
                 Total current liabilities                         63,790         6,746          4,242             --        74,778

Long-term pension liability, less current portion                  21,349            --             --             --        21,349
Deferred income taxes                                             122,527           122             14             --       122,663
Note payable                                                           --            --          6,430         (6,430)           --
8% senior notes                                                   173,933            --             --                      173,933
Long-term debt, less current portion                              201,611            --          1,212                      202,823
                                                               ----------    ----------     ----------     ----------    ----------
                 Total liabilities                                583,210         6,868         11,898         (6,430)      595,546
                                                               ----------    ----------     ----------     ----------    ----------
Shareholders' equity:
         Common stock $.01 par value, authorized
            1,000 shares; issued 1,000 shares                          --            --             --             --            --
         Additional paid-in capital                               145,141            --             --             --       145,141
         Accumulated other comprehensive loss                         (30)           --            811             --           781
         Retained earnings                                        (11,162)         (454)           212             --       (11,404)
                                                               ----------    ----------     ----------     ----------    ----------
                 Total shareholders' equity                       133,949          (454)         1,023             --       134,518
                                                               ----------    ----------     ----------     ----------    ----------
                 Total liabilities and shareholders' equity    $  717,159    $    6,414     $   12,921     $   (6,430)   $  730,064
                                                               ==========    ==========     ==========     ==========    ==========
</TABLE>


                                       22
<PAGE>

                           CONSOLIDATING BALANCE SHEET
                               PREDECESSOR PERIOD
                                December 31, 2004

<TABLE>
<CAPTION>
                                                                              Guarantor   Non-Guarantor
                                                                 Issuer     Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                                                 ------     ------------   ------------   ------------  ------------
<S>                                                            <C>           <C>            <C>            <C>           <C>
Current assets:
         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>


                                       23
<PAGE>

                       CONSOLIDATING STATEMENT OF EARNINGS
                                SUCCESSOR PERIOD
                        July 1, 2005 - September 30, 2005

<TABLE>
<CAPTION>
                                                                Guarantor     Non-Guarantor
                                                  Issuer      Subsidiaries     Subsidiaries    Eliminations    Consolidated
                                                  ------      ------------     ------------    ------------    ------------
<S>                                             <C>            <C>              <C>             <C>             <C>
Net sales                                       $   73,857     $   20,048       $   10,887                      $  104,792

Cost of goods sold                                  46,415          7,115            5,738                          59,268
Selling and administrative expenses                 23,920         12,831            4,407                          41,158
Severance expenses                                   1,978             --               --                           1,978
Merger expenses                                        237             --               --                             237
                                                ----------     ----------       ----------      ----------      ----------
      Operating income                               1,307            102              742              --           2,151

Other income (expense):
      Interest expense, net                         (7,225)            --              (72)                         (7,297)
      Other income (expense), net                       60             14              346                             420
                                                ----------     ----------       ----------      ----------      ----------
Loss before income taxes                            (5,858)           116            1,016              --          (4,726)
Provision for (benefit from) income taxes           (7,692)           536              498              --          (6,658)
                                                ----------     ----------       ----------      ----------      ----------
      Net earnings                              $    1,834     $     (420)      $      518      $       --      $    1,932
                                                ==========     ==========       ==========      ==========      ==========
</TABLE>


                                       24
<PAGE>

                       CONSOLIDATING STATEMENT OF EARNINGS
                               PREDECESSOR PERIOD
                        July 1, 2004 - September 30, 2004

<TABLE>
<CAPTION>
                                                                Guarantor     Non-Guarantor
                                                  Issuer      Subsidiaries     Subsidiaries    Eliminations    Consolidated
                                                  ------      ------------     ------------    ------------    ------------
<S>                                             <C>            <C>              <C>             <C>             <C>
Net sales                                       $   83,810     $   21,039       $   10,703                      $  115,552

Cost of goods sold                                  47,747          5,976            4,918                          58,641
Selling and administrative expenses                 29,068         10,590            4,609                          44,267
Severance expenses                                       9              5               --                              14
Merger expenses                                      1,150             --               --                           1,150
                                                ----------     ----------       ----------      ----------      ----------
      Operating income                               5,836          4,468            1,176              --          11,480

Other income (expense):
       Loss on sale of building and land              (105)            --               --                            (105)
      Interest expense, net                           (774)            --              (75)                           (849)
      Other income (expense), net                        4              5              364                             373
                                                ----------     ----------       ----------      ----------      ----------
Earnings before income taxes                         4,961          4,473            1,465              --          10,899
Provision for income taxes                           2,206          1,626              605                           4,437
                                                ----------     ----------       ----------      ----------      ----------
      Net earnings                              $    2,755     $    2,847       $      860      $       --      $    6,462
                                                ==========     ==========       ==========      ==========      ==========
</TABLE>


                                       25
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Guarantor     Non-Guarantor
                                                  Issuer      Subsidiaries     Subsidiaries    Eliminations    Consolidated
                                                  ------      ------------     ------------    ------------    ------------
<S>                                             <C>            <C>              <C>             <C>             <C>
Net sales                                       $  202,350     $   55,650       $   26,613                      $  284,613

Cost of goods sold                                 129,295         19,032           14,166                         162,493
Selling and administrative expenses                 66,736         35,860           11,725                         114,321
Severance expenses                                   1,978             --               --                           1,978
Merger expenses                                      4,187            701               --                           4,888
                                                ----------     ----------       ----------      ----------      ----------
      Operating income                                 154             57              722              --             933

Other income (expense):
      Interest expense, net                        (18,835)            --             (194)                        (19,029)
      Other income (expense), net                       59             12              426                             497
                                                ----------     ----------       ----------      ----------      ----------
Loss before income taxes                           (18,622)            69              954              --         (17,599)
Provision for (benefit from) income taxes           (7,460)           523              742              --          (6,195)
                                                ----------     ----------       ----------      ----------      ----------
      Net earnings (loss)                       $  (11,162)    $     (454)      $      212      $       --      $  (11,404)
                                                ==========     ==========       ==========      ==========      ==========
</TABLE>


                                       26
<PAGE>

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

<TABLE>
<CAPTION>
                                                                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>


                                       27
<PAGE>

                       CONSOLIDATING STATEMENT OF EARNINGS
                               PREDECESSOR PERIOD
                      Nine Months ended September 30, 2004

<TABLE>
<CAPTION>
                                                                Guarantor     Non-Guarantor
                                                  Issuer      Subsidiaries     Subsidiaries    Eliminations    Consolidated
                                                  ------      ------------     ------------    ------------    ------------
<S>                                             <C>            <C>              <C>             <C>             <C>
Net sales                                       $  216,440     $   57,416       $   27,709                      $  301,565

Cost of goods sold                                 123,020         15,760           13,446                         152,226
Selling and administrative expenses                 82,269         32,353           12,374                         126,996
Severance expenses                                      11              6               --                              17
Merger expenses                                      1,366             --               --                           1,366
                                                ----------     ----------       ----------      ----------      ----------
      Operating income                               9,774          9,297            1,889              --          20,960

Other income (expense):
      Loss on sale of building and land               (146)            --               --                            (146)
      Interest expense, net                         (2,476)            --             (232)                         (2,708)
      Other income (expense), net                     (151)           (21)             191                              19
                                                ----------     ----------       ----------      ----------      ----------
Earnings before income taxes                         7,001          9,276            1,848              --          18,125
Provision for income taxes                           3,111          3,323              792                           7,226
                                                ----------     ----------       ----------      ----------      ----------
      Net earnings                              $    3,890     $    5,953       $    1,056      $       --      $   10,899
                                                ==========     ==========       ==========      ==========      ==========
</TABLE>


                                       28
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              Guarantor   Non-Guarantor
                                                                 Issuer     Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                                                 ------     ------------   ------------   ------------  ------------
<S>                                                            <C>           <C>            <C>            <C>           <C>
Cash flows from operating activities:
Net earnings (loss)                                            $  (11,162)   $     (454)    $      189     $       23    $  (11,404)
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                       7,649           402            323             17         8,391
Amortization of display fixtures                                    5,659            --            405                        6,064
Amortization of inventory fair value adjustment                     4,945         2,278            860                        8,083
Amortization of deferred financing fees & original
 issue discount                                                     1,516            --             --                        1,516
Deferred income taxes                                              (8,626)          352             --                       (8,274)
Provision for (recovery from) doubtful accounts                        30           (28)            --                            2
Other non-cash operating items                                          9            --           (437)                        (428)
Changes in operating assets and liabilities:
    Accounts receivable                                            (6,632)       (1,280)        (2,427)                     (10,339)
    Inventories                                                       896         6,366           (558)                       6,704
    Prepaid expenses and other current assets                      (1,884)          192            (33)                      (1,725)
    Other assets                                                   (9,572)           15           (442)                      (9,999)
    Accounts payable                                               (5,047)         (948)          (155)                      (6,150)
    Accrued liabilities                                           (15,785)         (560)           365                      (15,980)
    Pension liability (net)                                           (15)           --             --                          (15)
    Income taxes receivable / payable                                (517)          427           (385)           (23)         (498)
    Intercompany receivables / payables                             4,468        (6,695)         2,159             68            --
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash provided by (used in) operating activities         (34,068)           67           (136)            85       (34,052)
                                                               ----------    ----------     ----------     ----------    ----------
Cash flows provided by (used in) investing activities:
    Property, plant and equipment additions                        (4,140)          (26)           (21)                      (4,187)
    Purchase of Del Laboratories, Inc                            (377,233)           --             --                     (377,233)
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash used in investing activities                      (381,373)          (26)           (21)            --      (381,420)
                                                               ----------    ----------     ----------     ----------    ----------
Cash flows provided by (used in) financing activities:
    Borrowings under revolving credit agreement                     5,000            --             --                        5,000
    Principal payments under mortgages                                 --            --            (40)                         (40)
    Principal payments under term loan                             (1,500)           --             --                       (1,500)
    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 fees                                                 (29,305)           --             --                      (29,305)
    Contributed Capital                                           138,200            --             --                      138,200
    Payment of capital lease obligations                              (89)           --             --                          (89)
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash provided by (used in) financing activities         416,835            --            (40)            --       416,795
                                                               ----------    ----------     ----------     ----------    ----------
Effect of exchange rate changes on cash                                --            --             75            (85)          (10)
                                                               ----------    ----------     ----------     ----------    ----------
Net increase (decrease) in cash and cash equivalents                1,394            41           (122)            --         1,313

Cash and cash equivalents at beginning of year                      1,241          (115)         1,251             --         2,377
                                                               ----------    ----------     ----------     ----------    ----------
Cash and cash equivalents at end of year                       $    2,635    $      (74)    $    1,129     $       --    $    3,690
                                                               ==========    ==========     ==========     ==========    ==========
</TABLE>


                                       29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              Guarantor   Non-Guarantor
                                                                 Issuer     Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                                                 ------     ------------   ------------   ------------  ------------
<S>                                                            <C>           <C>            <C>            <C>           <C>
Cash flows from operating activities:
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>


                                       30
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              Guarantor   Non-Guarantor
                                                                 Issuer     Subsidiaries   Subsidiaries   Eliminations  Consolidated
                                                                 ------     ------------   ------------   ------------  ------------
<S>                                                            <C>           <C>            <C>            <C>           <C>
Cash flows from operating activities:
Net earnings                                                   $    3,891    $    5,953     $    1,056     $       (1)   $   10,899
Adjustments to reconcile net earnings to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                       5,552           333            312             12         6,209
Amortization of display fixtures                                    6,199            --            353                        6,552
Amortization of deferred financing fees                               148            --             --                          148
Provision for (recovery from) doubtful accounts                        57           (25)            --                           32
Tax benefit on stock options exercised                                624            --             --                          624
Gain on sale of building and land                                     146            --             --                          146
Other non-cash operating items                                        134            --           (166)                         (32)
Changes in operating assets and liabilities:
    Accounts receivable                                            (3,816)       (1,399)          (781)                      (5,996)
    Inventories                                                    (8,535)         (242)           443                       (8,334)
    Prepaid expenses and other current assets                      (1,440)          (69)           (87)                      (1,596)
    Other assets                                                   (7,253)           26           (307)                      (7,534)
    Accounts payable                                                6,105            26         (2,574)                       3,557
    Accrued liabilities                                            (2,848)       (1,314)           422                       (3,740)
    Deferred liability                                                 69            --             --                           69
    Pension liability (net)                                           (83)           --             --                          (83)
    Income taxes receivable / payable                              (3,512)        3,252            170              1           (89)
    Intercompany receivables / payables                             4,397        (5,942)         1,510             35            --
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash provided by (used in) operating activities            (165)          599            351             47           832
                                                               ----------    ----------     ----------     ----------    ----------
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                        (7,196)         (375)           (66)                      (7,637)
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash used in investing activities                        (2,380)         (375)           (66)            --        (2,821)
                                                               ----------    ----------     ----------     ----------    ----------
Cash flows provided by (used in) financing activities:
    Principal borrowings under revolving credit
     agreement, net                                                 3,000            --             --                        3,000
    Principal payments under mortgages                               (259)           --            (30)                        (289)
    Payment of capital lease obligations                              (83)           --             --                          (83)
    Proceeds from the exercise of stock options                       244            --             --                          244
    Acquisition of treasury stock                                    (611)           --             --                         (611)
                                                               ----------    ----------     ----------     ----------    ----------
      Net cash provided by (used in) financing activities           2,291            --            (30)            --         2,261
                                                               ----------    ----------     ----------     ----------    ----------
Effect of exchange rate changes on cash                                --            --             27            (47)          (20)
                                                               ----------    ----------     ----------     ----------    ----------
Net increase (decrease) in cash and cash equivalents                 (254)          224            282             --           252

Cash and cash equivalents at beginning of year                      1,750          (254)           617                        2,113
                                                               ----------    ----------     ----------     ----------    ----------
Cash and cash equivalents at end of year                       $    1,496    $      (30)    $      899             --    $    2,365
                                                               ==========    ==========     ==========     ==========    ==========
</TABLE>


                                       31
<PAGE>

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

RECENT DEVELOPMENTS

On October 28, 2005, the Company issued $185 million in principal amount of
senior secured floating rate notes due November 1, 2011 (the "Notes") and
entered into a $75 million credit agreement, maturing on October 28, 2007 (the
"Revolver") with J. P. Morgan Chase Bank, N.A., as administrative agent. The
Company used the net proceeds from the sale of the Notes, together with
borrowings under the Revolver, to repay all outstanding borrowings under the
prior senior Credit Agreement and to terminate all commitments thereunder.
See "Liquidity and Capital Resources."

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 strong 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.


                                       32
<PAGE>

MERGER TRANSACTION

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company, L.P. ("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 $485 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 $136.1 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 in
DLI LLC for approximately 0.1% of the interests in DLI LLC. A third party
investor invested $2.0 million 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 was named
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. Effective August 19, 2005, Mr. McMenemy resigned as
President and Chief Executive Officer and Mr. Hinkaty assumed the position. On
August 5, 2005, Mr. Vialardi announced plans to retire effective January 31,
2006. On the same date, the Company announced that Joseph Sinicropi would assume
the role of Executive Vice President and Chief Financial Officer, effective
September 1, 2005. Mr. Vialardi will continue with the Company to assist with
the transition until his retirement.

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 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. A registration statement under the Securities Act registering the exchange
offer for these notes became effective on May 13, 2005. On June 22, 2005, Del
completed an exchange offer of the privately placed notes for SEC registered
notes.


                                       33
<PAGE>

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, which
provided 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 were guaranteed by
Holding II and certain of the domestic subsidiaries of Del. The senior credit
facilities and the guarantees thereof were 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. In connection with the refinancing transactions, the Company repaid
all borrowings under the agreement and the agreement was terminated.
See "-Liquidity and Capital Resources."

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 $416.4 million, comprised of $377.2 million for the
acquisition of the outstanding shares and options exercised, $6.9 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.


                                       34
<PAGE>

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 September 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.

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

The Company's net sales for the third quarter ended September 30, 2005 were
$104.8 million, a decrease of $10.8 million, or 9.3% compared to net sales of
$115.6 million for the three months ended September 30, 2004. The decrease in
net sales for the third quarter of 2005 compared with the third quarter of 2004
is due to a number of factors. In the third quarter of 2004, net sales included
incremental sales that should have been shipped in the second quarter of 2004
but were delayed as a result of production start-up problems in the first half
of 2004 as the Company transferred its principal manufacturing operations to
Rocky Point, North Carolina from Farmingdale, New York. Second, in the third
quarter of 2004, the Company introduced a new promotional nail color product
line (not intended as a permanent part of its Sally Hansen(R) franchise), which
resulted in incremental sales in the third quarter of 2004. In addition, during
the third quarter of 2005, the Company experienced supply chain inefficiencies
resulting in missed or delayed sales, which led to significant lost sales during
the quarter. The Company has taken steps to address this issue, including its
recent implementation of process improvements, management changes and the hiring
of the Synergetics Installations Worldwide, Inc. consulting group.


                                       35
<PAGE>

The Cosmetic segment of the business generated net sales for the third quarter
ended September 30, 2005 of $83.7 million, a decrease of $9.5 million, or 10.2%
compared to net sales of $93.2 million for the third quarter ended September 30,
2004. As reported by ACNielsen, the Sally Hansen brand remains the number one
brand in the mass market nail care category with a 26.4% share of market for the
quarter.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the third quarter ended September 30, 2005 of $21.1 million, a decrease of
$1.3 million, or 5.8% compared to net sales of $22.4 million for the third
quarter ended September 30, 2004 due principally to lower sales in niche
markets. Orajel, the core brand of the Pharmaceutical segment increased its
leadership position in the oral analgesics category with a 32.2% share of market
for the quarter, as reported by Information Resources, Inc.

Cost of goods sold for the third quarter ended September 30, 2005 was $59.3
million, or 56.6% of net sales, compared to $58.6 million, or 50.7% of net sales
for the third quarter ended September 30, 2004. Cost of goods sold for the third
quarter of 2005 includes costs of approximately $2.5 million, or 2.4% of net
sales, related to the amortization of the inventory step-up to fair value as a
result of purchase accounting.

Selling and administrative expenses for the third quarter ended September 30,
2005 was $41.2 million, or 39.3% of net sales, compared to $44.3 million, or
38.3% of net sales for the third quarter ended September 30, 2004. Selling
expenses for the third quarter of 2005 include approximately $1.3 million or
1.2% of net sales related to the amortization of intangible assets arising from
the acquisition.

Merger expenses for the third quarter ended September 30, 2005 was $237
thousand, compared to $1.2 million for the third quarter ended September 30,
2004. The merger expenses are primarily related to legal and advisory fees and
expenses incurred in connection with the merger transaction.

As part of its efforts to streamline its organization and reduce costs, the
Company completed a workforce reduction program in September 2005. The program
entailed an assessment of our workforce requirements across all of our major
departments and resulted in the elimination of 55 positions at various levels.
The workforce reduction is anticipated to save approximately $6.7 million
annually. In connection with the workforce reduction program a one-time
severance charge of $2.0 million including approximately $1.5 million due to the
terms of the Severance Agreement with Mr. McMenemy was recorded in the three
months ended September 30, 2005.

Net interest expense for the third quarter ended September 30, 2005 of $7.3
million is primarily attributable to interest incurred on the prior senior
credit agreement, 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 third quarter ended September 30, 2004 of $0.8 million 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 tax benefit for the third quarter ended September 30, 2005 of $6.7
million was based on the Company's expected effective tax rate of 35.0% for the
period February 1, 2005 to December 31, 2005. The change in the expected
effective tax rate from the prior period is principally the result of increased
expected losses in the U.S. primarily due to the expenses of the refinancing
transaction (see note 8), partially offset by taxable income of foreign
subsidiaries which is taxed at higher rates than the U.S.

Income taxes for the third quarter ended September 30, 2004 of $4.4 million was
based on the Company's expected annual effective tax rate of 39.9% for 2004.

Net earnings for the third quarter ended September 30, 2005 of $1.9 million is
primarily attributable to operating income and the income tax benefit offset by
higher interest expenses.

Net earnings for the third quarter ended September 30, 2004 of $6.5 million are
attributable to the operating income generated by the Predecessor Company.


                                       36
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2004

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

<TABLE>
<CAPTION>
                                                                                                 NINE MONTHS
                                                             NINE MONTHS ENDED                      ENDED
                                                               SEPT 30, 2005                    SEPT 30, 2004
                                                               -------------                    -------------
                                                                   ($000)                           ($000)

                                               Feb 1,2005       Jan 1, 2005                      Jan 1, 2004
                                              Sept 30, 2005    Jan 31, 2005                     Sept 30, 2004
                                              -------------    ------------                     -------------

                                                SUCCESSOR       PREDECESSOR                      PREDECESSOR
                                                  PERIOD           PERIOD          COMBINED         PERIOD
                                                  ------           ------          --------         ------
<S>                                              <C>              <C>              <C>             <C>
Net Sales
    Cosmetic segment                             $225,987         $ 14,756         $240,743        $240,503
    Pharmaceutical segment                         58,626            3,450           62,076          61,062
                                                 --------         --------         --------        --------
Total net sales                                   284,613           18,206          302,819         301,565

Cost of goods sold                                162,493            9,718                          152,226
Selling and administrative expenses               114,321           11,475                          126,996
Severance expenses                                  1,978               --                               17
Merger expenses                                     4,888           18,974                            1,366
                                                 --------         --------                         --------
Operating income (loss)                               933          (21,961)                          20,960

Other income (expense):
    Loss on sale of building and land                  --               --                             (146)
    Interest expense, net                         (19,029)            (264)                          (2,708)
    Other income (expense), net                       497             (232)                              19
                                                 --------         --------                         --------
Earnings (loss) before income taxes               (17,599)         (22,457)                          18,125
Provision for (benefit from) income taxes          (6,195)         (24,434)                           7,226
                                                 --------         --------                         --------
Net earnings (loss)                              $(11,404)        $  1,977                         $ 10,899
                                                 ========         ========                         ========
</TABLE>

The Company's net sales for the nine months ended September 30, 2005 were $302.8
million, an increase of $1.2 million, or 0.4% compared to net sales of $301.6
million for the nine months ended September 30, 2004.

The Cosmetic segment of the business generated net sales for the nine months
ended September 30, 2005 of $240.7 million, an increase of $0.2 million, or
0.08% compared to net sales of $240.5 million for the nine months ended
September 30, 2004.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the nine months ended September 30, 2005 of $62.1 million, an increase of
$1.0 million, or 1.6% compared to net sales of $61.1 million for the nine months
ended September 30, 2004.

Cost of goods sold for the Successor Period February 1, 2005 to September 30,
2005 was $162.5 million, or 57.1% of net sales. Cost of goods sold for the
period February 1, 2005 to September 30, 2005 includes approximately $8.1
million, or 2.7% of net sales related to the amortization of the inventory
step-up to fair value as a result of purchase accounting

Cost of goods sold for the Predecessor Period January 1, 2004 to September 30,
2004 was $152.2 million, or 50.5% of net sales.


                                       37
<PAGE>

Selling and administrative expenses for the Successor Period February 1, 2005 to
September 30, 2005 was $114.3 million, or 40.2% of net sales. Selling expenses
for the Successor Period of 2005 include approximately $3.5 million or 1.2% of
net sales related to the amortization of intangible assets arising from the
acquisition.

Selling and administrative expenses for the Predecessor Period January 1, 2004
to September 30, 2004 was $127.0 million, or 42.1% of net sales.

Merger expenses for the Successor Period February 1, 2005 to September 30, 2005
of $4.9 million are primarily related to change of control payments and legal
and advisory fees and expenses incurred in connection with the merger
transaction.

Merger expenses for the Predecessor Period January 1, 2004 to September 30, 2004
were $1.4 million consisting principally of legal and advisory fees and expenses
incurred in connection with the merger transaction.

As part of our efforts to streamline our organization and reduce costs, the
Company completed a workforce reduction program in September 2005. The program
entailed an assessment of our workforce requirements across all of our major
departments and resulted in the elimination of 55 positions at various levels.
The workforce reduction is anticipated to save approximately $6.7 million
annually. In connection with the workforce reduction program a one-time
severance charge of $2.0 million (approximately $1.5 million due to the terms of
the Severance Agreement with Mr. McMenemy) was recorded in the three months
ended September 30, 2005.

Net interest expense for the Successor Period February 1, 2005 to September 30,
2005 of $19.0 million was primarily attributable to interest incurred on the
prior senior credit agreement, 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 September 30,
2004 of $2.7 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 tax benefit for the Successor Period February 1, 2005 to September 30,
2005 of $6.2 million was based on the Company's expected effective tax benefit
rate of 35% for the period February 1, 2005 to December 31, 2005. The change in
the expected effective tax rate from the prior period is principally the result
of increased expected losses in the U.S. primarily due to the expenses of the
refinancing transaction (see note 8), partially offset by taxable income of
foreign subsidiaries which is taxed at higher rates than the U.S.

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 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 September 30, 2004 of
$7.2 million was based on the Company's expected annual effective tax rate of
39.9% for 2004.

Net loss for the Successor period February 1, 2005 to September 30, 2005 of
$11.4 million is primarily attributable to net interest expense.

Net earnings for the Predecessor period January 1, 2004 to September 30, 2004 of
$10.9 million are primarily attributable to the operating income generated by
the Predecessor Company.

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


                                       38
<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 senior notes.

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

      o     the closing of senior credit facilities which provide for
            aggregate maximum borrowings of $250.0 million consisting of $200.0
            million in a term loan (the "Term Loan") and up to $50.0 million in
            borrowings under a revolving credit facility (collectively referred
            to as "Senior Debt" or "Credit Facility");

      o     the issuance and sale of $175 million in aggregate principal amount
            8% senior subordinated notes (the "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.

As of September 30, 2005, we had $378.9 million of total debt, consisting
primarily of $173.9 million of Subordinated Notes, $198.5 million of the Term
Loan and $5.0 million outstanding under the revolving credit facility. As of
September 30, 2005, the Company had $45.0 million available to borrow under the
revolving Credit Facility, subject to limitations under the senior debt.

On October 28, 2005, the Company refinanced its Senior Debt with the issuance of
$185 million of Notes and $27.5 million of Revolver borrowings. Borrowing
availability, as defined, under the Revolver as of that date was $41.8 million
net of the $27.5 million drawn at the closing. As of November 9, 2005,
availability (net of $19.5 million of borrowings) under the Revolver is $49.8
million.

CREDIT AGREEMENT FINANCIAL COVENANTS (AT SEPTEMBER 30, 2005)

Borrowings under the Senior Debt were subject to certain conditions and
limitations described below. The indenture governing the Subordinated Notes
contains, and the Senior Debt contained, 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. The Senior Debt required that we maintain certain
financial ratios and contained 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.

The Senior Debt also contained a number of covenants that, among other things,
limited or restricted the ability of the Company and its subsidiaries to dispose
of assets, incur additional indebtedness, incur guarantee obligations, prepay
other indebtedness, including the Subordinated Notes, create liens, make equity
or debt investments, make acquisitions, modify the terms of the indenture under
which the Subordinated Notes are issued, engage in mergers or engage in certain
transactions with affiliates. In addition, under the Senior Debt, the Company
was 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.


                                       39
<PAGE>

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 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 were a key source of our
liquidity. Our ability to borrow under the senior credit facilities was
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, would have
permitted the acceleration of all outstanding borrowings under such credit
agreement.

The test periods for compliance with the financial covenants in the Credit
Facility began on June 30, 2005. The financial covenants specified, among other
things, the following requirements for each fiscal quarter ended during the
following test periods:

<TABLE>
<CAPTION>
                                                                   Consolidated EBITDA to
                                         Consolidated Total Debt    Consolidated Interest
                                         to 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>

"Consolidated EBITDA," as that term was defined in the First Amendment to the
credit agreement and used for purposes of the financial covenants, consisted of
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 gave effect to supplemental adjustments for expected cost
savings. The Credit Facility further provided that Consolidated EBITDA was
deemed to be $22.1 million for the fiscal quarter ended December 31, 2004 and
that, for the fiscal quarter ending March 31, 2005, Consolidated EBITDA would be
increased by $1.6 million as an allowance for anticipated cost savings
identified by Kelso.

The definition of "Consolidated EBITDA" under the Revolver and used for purposes
of the financial covenant therein is substantially the same as the one under
the prior credit agreement.


                                       40
<PAGE>

"Consolidated EBITDA" as defined under the First Amendment to the credit
agreement for the Senior Debt is not the same as "Consolidated EBITDA" as used
in the indentures under which the Subordinated Notes and the Notes are issued.
The term "Consolidated EBITDA" is used in the indentures 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.

Credit Agreement EBITDA as presented herein is a financial measure that was used
in the credit agreement for the Company's 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 was 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. The Company was in default
of the Consolidated Total Debt to Consolidated EBITDA leverage ratio at
September 30, 2005. Due to the refinancing transaction, the Company has
continued to reflect debt as long-term (see "Refinancing" below).

The calculation of Credit Agreement EBITDA for the periods indicated is set
forth below.

<TABLE>
<CAPTION>
                                   Qtr 4        Qtr 1        Qtr 2        Qtr 3
                                     2004        2005         2005         2005        Total
                                     ----        ----         ----         ----        -----
<S>                               <C>         <C>          <C>          <C>          <C>
Net earnings (loss)               $     --    $ (1,245)    $(10,114)    $  1,932     $ (9,427)
Income tax provision (benefit)          --     (26,537)       2,566       (6,658)     (30,629)
Interest expense, net                   --       5,114        6,882        7,297       19,293
Depreciation and Amortization           --       5,153        5,418        5,396       15,967
Purchase accounting                              1,038        4,541        2,504        8,083
Losses related to disposition
  of excess, surplus or
  obsolete inventory                                --           --        3,627        3,627
Extraordinary, unusual or
  or non-recurring items                --      22,901          724        3,004       26,629
Other                                   --         266          380          (34)         612
Scheduled EBITDA per
  credit agreement                  22,100          --           --           --       22,100
Credit agreement add backs              --       1,600           --           --        1,600
                                  --------    --------     --------     --------     --------
Credit Agreement EBITDA           $ 22,100    $  8,290     $ 10,397     $ 17,068     $ 57,855
                                  ========    ========     ========     ========     ========
</TABLE>


OPERATING ACTIVITIES

Net cash used in operating activities for the Successor Period February 1, 2005
to September 30, 2005 of $34.1 million was principally due to an increase in
accounts receivable of $10.3 million and a decrease of $17.3 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 $3.0 million, offset by an increase of
approximately $3.0 million of accrued interest expense related to the new
borrowings incurred in connection with the merger transaction.


                                       41
<PAGE>

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 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.

On October 27, 2005 the Company received a Federal cash tax refund of $11.8
million.

INVESTING ACTIVITIES

Net cash used in investing activities of $381.4 million for the Successor Period
February 1, 2005 to September 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.

We expect that our total capital expenditures will be approximately $7.0 million
in 2005, which will be used primarily for machinery and equipment.

FINANCING ACTIVITIES

Net cash provided by financing activities for the Successor Period February 1,
2005 to September 30, 2005 of $416.8 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 $1.5 million was used to
reduce the outstanding principal under the term loan. The Company anticipates
that it may, from time to time, purchase its debt securities through the open
market.

Cash paid for interest during the Successor Period was approximately $14.5
million.

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.

REFINANCING

On October 28, 2005, the Company issued $185 million in principal amount of
unregistered senior secured floating rate notes (the "Notes") due November 1,
2011 in a private placement. The Notes bear interest, payable quarterly, at a
rate per annum equal to Libor plus 5.0 percent. The Notes are secured by a first
priority security interest in substantially all tangible and intangible assets
other than inventory, accounts receivable, equity interests in the Company's
subsidiaries and other specifically excluded assets. The Notes hold a second
priority security interest in substantially all inventory, receivables and
specified liquid assets. Each domestic subsidiary of the Company is a guarantor
under the Notes. The Notes contain covenants that among other limitations
restrict the Company's ability to incur certain additional indebtedness, pay
dividends, make other restricted payments and investments and transfer or sell
assets.


                                       42
<PAGE>

The Company intends to file a registration statement with the Securities and
Exchange Commission to register an exchange offer of the Notes for registered
notes.

Additionally, on October 28, 2005, the Company entered into a $75.0 million
credit agreement, maturing on October 28, 2007 (the "Revolver"), with J.P.
Morgan Chase Bank, N.A., as administrative agent. The Revolver is an asset based
facility with a first priority security interest in substantially all accounts
receivable, inventory and other specified assets and a second priority security
interest in substantially all tangible and intangible assets. Borrowings under
the Revolver are determined by a formula which provides eligibility of up to 60
percent of the net book value of domestic accounts receivable and a range of 15
percent to 50 percent of domestic inventory. Borrowings under the Revolver bear
interest, initially at either Libor plus 1.75 percent or the banks base rate
plus .75 percent; such margin increasing every 90 days by .50 percent, with a
limit beginning July 28, 2006 of 3.25 percent and 2.25 percent, respectively.

The Revolver is guaranteed by the domestic subsidiaries and DLI Holding Corp,
the parent company.

The Company intends to replace the Revolver with a longer term $85 million asset
based credit facility by December 31, 2005.

The Company used the net proceeds from the sale of the Notes, together with
borrowings under the Revolver, to repay all outstanding borrowings under the
prior senior Credit Agreement and to terminate all commitments thereunder.

The Company and subsidiary guarantors, the credit facility collateral agent, and
the trustee for the Notes and the note collateral agent entered into an
Intercreditor Agreement.

The loans under the Notes and the Revolver bear interest at variable rates based
upon the interest rate option elected by the Company. Based on management
estimates, the loans under the Notes and the Revolver will bear interest for the
balance of calendar 2005 at a weighted average rate per annum of 9.0%. The
Subordinated Notes bear interest at a rate of 8.0%. Based on the prevailing
interest rates at November 9, 2005, interest expense in 2005 is expected to be
approximately $34.5 million, including approximately $8.5 million of non-cash
amortization of deferred debt issuance costs. The $8.5 million includes the
write off of $6.6 million as a result of the refinancing of the Credit Facility
previously discussed.

Principal and interest payments under the senior subordinated notes, the notes
and the revolver represent significant liquidity requirements for us. We expect
that cash provided from operations and available borrowings under Revolver 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 Subordinated Notes and 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 Subordinated Notes and the Notes, or to
fund our other liquidity needs.

The Notes and the Revolver include limitations on capital spending, asset sales,
foreign subsidiary debt, and liens, among other things. In addition, the
Revolver contains a Consolidated Fixed Charge Coverage Ratio (the "Ratio") in
the event excess borrowing availability is less than $10 million on any day. The
Ratio is a measure of Consolidated EBITDA, as defined, to consolidated fixed
charges.

Under the terms of the Revolver, the Ratio test would not apply as of September
30, 2005 as borrowing availability under the Revolver exceeded the $10 million
threshold. Borrowings under the Revolver will be a key source of our liquidity,
and our ability to borrow thereunder will depend on our compliance with the
covenants under the credit agreement, including the Ratio test. Failure to
comply with these covenants would result in a violation of the credit agreement
which, absent a waiver or an amendment, would permit the lenders to accelerate
borrowings thereunder.


                                       43
<PAGE>

Under the terms of the Revolver, Consolidated EBITDA would have been:

<TABLE>
<CAPTION>
                                   Qtr 4       Qtr 1        Qtr 2        Qtr 3         Total
                                    2004        2005         2005         2005          Year
                                    ----        ----         ----         ----          ----
<S>                               <C>         <C>          <C>          <C>          <C>
Net earnings (loss)               $     --    $     --     $     --     $  1,932     $  1,932
Income tax provision (benefit)                                            (6,658)      (6,658)
Interest expense, net                                                      7,297        7,297
Depreciation and Amortization                                              5,396        5,396
Purchase accounting                                                        2,504        2,504
Losses related to disposition
  of excess, surplus or
  obsolete inventory                                                       3,627        3,627
Extraordinary, unusual or
   or non-recurring items                                                  3,004        3,004
Other                                                                        (34)         (34)
Scheduled EBITDA per
  credit agreement                  17,602       9,049       12,155           --       38,806
Credit agreement add backs                                                 1,376        1,376
                                  --------    --------     --------     --------     --------
Credit Agreement EBITDA           $ 17,602    $  9,049     $ 12,155     $ 18,444     $ 57,250
                                  ========    ========     ========     ========     ========
</TABLE>

"Consolidated EBITDA," "as the term is defined in the Revolver and used for
purposes of the Ratio test, is substantially the same as the one under the prior
credit agreement. The Revolver further provides that Consolidated EBITDA was
deemed to be $17.6 million, $9.0 million and $12.2 million for the fiscal
quarters ended December 31, 2004, March 31, 2005 and June 30, 2005,
respectively, and that for the fiscal quarter ending September 30, 2005,
Consolidated EBITDA would be increased by $1.4 million as an allowance for
anticipated cost-savings identified by the Company.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS

In order to aggregate all contractual obligations as of September 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                    198,500       2,000       2,000       2,000       4,000     188,500
Revolving credit agreement              5,000          --          --          --          --       5,000
Mortgage on land and buildings          1,268          56          59          63       1,090          --
Capital leases                            237         126         105           6          --          --
Operating leases                       31,072       3,899       3,567       3,296       6,118      14,192
                                     --------    --------    --------    --------    --------    --------
Total contractual obligations (a)    $411,077    $  6,081    $  5,731    $  5,365    $ 11,208    $382,692
                                     ========    ========    ========    ========    ========    ========
</TABLE>

      (a) The Company expects to contribute approximately $4.8 million in fiscal
      year 2005 to fund its pension plans. These expected pension contributions
      are not included in the above table.


                                       44
<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.


                                       45
<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.


                                       46
<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 September 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.


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<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

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. Since the Company has not
issued any stock options as of September 30, 2005 and the existing rollover
options are fully vested, the adoption of Statement 123(R) would not have an
impact on our consolidated financial statements. If stock options are issued in
the future there could be an impact on our 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.


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<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 ability to
realize cost savings and operational improvements; 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 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 affect, us in the United States and/or abroad;
and trends in the general economy. 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.


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<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. On October 28, 2005, the
swap was terminated and the Company received $1,500 on November 1, 2005.

      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 September 30, 2005.

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, 2007. 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.


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<PAGE>

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

      (a)   EXHIBITS

                Exhibit 31.1    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


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<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:  November 14, 2005                    /s/ Charles J. Hinkaty
      ------------------------                    ----------------------
                                                  Charles J. Hinkaty
                                                  President and
                                                  Chief Executive Officer


      Date:  November 14, 2005                    /s/ Joseph Sinicropi
      ------------------------                    ----------------------
                                                  Joseph Sinicropi
                                                  Executive Vice President and
                                                  Chief Financial Officer


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