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 MARCH 31, 2007

      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. 001-05439

                             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 REXCORP PLAZA, UNIONDALE, NEW YORK 11556
                  --------------------------------------------
               (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 ( ) NO (X)

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

 Large accelerated filer ( )  Accelerated filer ( )  Non-accelerated filer (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 as of July 6,
2007 was 1,000.
<PAGE>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES

                                      Index


Part I.     FINANCIAL INFORMATION
                                                                            PAGE
Item 1.     Financial Statements (Unaudited)

            Consolidated Balance Sheets as of March 31, 2007 and
                December 31, 2006                                              3

            Consolidated Statements of Operations for the three
                months ended March 31, 2007 and 2006 (restated)                4

            Consolidated Statements of Cash Flows for the
                three months ended March 31, 2007 and 2006 (restated)          5

            Notes to Consolidated Financial Statements                         6

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                               25

Item 3.     Quantitative and Qualitative Disclosures About Market Risks       37

Item 4.     Controls and Procedures                                           38



Part II.    OTHER INFORMATION

Item 1A.    Risks Related to the Company                                      40

Item 6.     Exhibits                                                          40


SIGNATURES                                                                    41
<PAGE>

<TABLE>
<CAPTION>


                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      March 31, 2007 and December 31, 2006
                                 (In thousands)
                                  (Unaudited)

                                                                       March 31,   December 31,
                                                                         2007          2006
                                                                      -----------  ------------

         ASSETS

Current assets:
<S>                                                                    <C>          <C>
         Cash and cash equivalents                                     $   1,275    $      42
         Accounts receivable, less allowance for doubtful accounts
           of $1,899 in 2007 and $2,113 in 2006                           59,287       61,563
         Inventories                                                     102,051       95,062
         Deferred income taxes                                            30,342       29,995
         Prepaid expenses and other current assets                         6,612        6,409
                                                                       ---------    ---------
                          Total current assets                           199,567      193,071


Property, plant and equipment, net                                        41,400       44,647
Intangibles arising from acquisitions, net                               252,725      254,037
Goodwill                                                                 145,318      145,318
Other assets                                                              26,775       27,662
Deferred income taxes                                                     21,949       25,039
                                                                       ---------    ---------

                          Total assets                                 $ 687,734    $ 689,774
                                                                       =========    =========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                             $     259    $     165
         Accounts payable                                                 34,674       40,127
         Accrued liabilities                                              49,231       47,647
                                                                       ---------    ---------

                          Total current liabilities                       84,164       87,939

Long-term debt, less current portion                                     378,630      370,239
Long-term pension liability, less current portion                         13,512       19,943
Deferred liabilities                                                       1,506        1,492
Deferred income taxes                                                     99,867       98,455
                                                                       ---------    ---------
                          Total liabilities                              577,679      578,068
                                                                       ---------    ---------

Shareholders' equity:
         Common stock $.01 par value, 1,000 shares authorized
           and issued                                                       --           --
         Additional paid-in capital                                      144,409      146,261
         Accumulated other comprehensive income                              432          421
         Accumulated deficit (Note 6)                                    (34,786)     (34,976)
                                                                       ---------    ---------

                          Total shareholders' equity                     110,055      111,706
                                                                       ---------    ---------


                          Total liabilities and shareholders' equity   $ 687,734    $ 689,774
                                                                       =========    =========


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


                                      -3-
<PAGE>

<TABLE>
<CAPTION>


                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                 (In thousands)
                                   (UNAUDITED)


                                                               MARCH 31,
                                                               ---------
                                                         2007           2006
                                                       ---------      ---------
                                                                      Restated

<S>                                                    <C>            <C>
Net sales                                              $ 104,015      $  93,170

Cost of goods sold                                        50,921         48,528
                                                       ---------      ---------

Gross profit                                              53,094         44,642

Selling and administrative expenses                       45,774         41,419
Gain on pension curtailment (note 8a)                     (5,420)          --
Severance expenses (note 10)                                 759            146
                                                       ---------      ---------

Operating income                                          11,981          3,077

Other income (expense):
    Interest expense, net                                 (9,439)        (8,843)
    Other income (expense), net                                4              9
                                                       ---------      ---------

Earnings (loss) before income taxes                        2,546         (5,757)
Provision for (benefit from) income taxes                  1,067         (2,104)
                                                       ---------      ---------
Net earnings (loss)                                    $   1,479      $  (3,653)
                                                       =========      =========


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


                                      -4-
<PAGE>

<TABLE>
<CAPTION>

                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                 (In thousands)
                                   (UNAUDITED)

                                                                            March 31,
                                                                      --------------------
                                                                        2007        2006
                                                                      --------    --------
                                                                                   Restated

Cash flows provided by (used in) operating activities:
<S>                                                                   <C>         <C>
Net earnings (loss)                                                   $  1,479    $ (3,653)
Adjustments to reconcile net earnings (loss) to net cash
  provided by (used in) operating activities:
Depreciation and amortization                                            4,220       3,651
Amortization of display fixtures                                         2,707       2,261
Amortization of deferred financing fees and original issue discount        762         658
Non-cash stock compensation                                                168         223
Deferred income taxes                                                    3,368      (2,927)
Provision for excess and slow moving inventory                           2,581       1,231
Provision for (recovery from) doubtful accounts                           (188)         45
Gain on pension curtailment                                             (5,420)       --
Gain on sale of property                                                  --           (48)
Other non-cash operating items                                               7          39

Changes in operating assets and liabilities:
    Accounts receivable                                                  2,489      (6,536)
    Inventories                                                         (9,466)     (1,222)
    Prepaid expenses and other current assets                             (180)        856
    Other assets                                                        (2,733)     (3,735)
    Accounts payable                                                    (5,479)     (3,237)
    Accrued liabilities                                                  1,064        (913)
    Deferred liabilities                                                    14        --
    Pension liability (net)                                               (898)        212
                                                                      --------    --------

          Net cash used in operating activities                         (5,505)    (13,095)
                                                                      --------    --------

Cash flows provided by (used in) investing activities:
    Net proceeds from sale of property                                   2,771          50
    Property, plant and equipment additions                             (1,983)     (1,871)
                                                                      --------    --------

         Net cash provided by (used in) investing activities               788      (1,821)
                                                                      --------    --------

Cash flows provided by (used in) financing activities:
    Principal borrowings under revolving credit facility, net            8,000      13,900
    Principal payments under mortgage                                      (15)        (14)
    Payment of deferred financing fees                                    --          (326)
    Distribution to DLI Holding Corp. (Note 9(b))                       (2,020)       --
    Contributed capital                                                   --            40
    Payment of capital lease obligations                                   (32)        (31)
                                                                      --------    --------

          Net cash provided by financing activities                      5,933      13,569
                                                                      --------    --------

Effect of exchange rate changes on cash                                     17          17
                                                                      --------    --------

Net increase (decrease) in cash and cash equivalents                     1,233      (1,330)

Cash and cash equivalents at beginning of period                            42       2,602
                                                                      --------    --------

Cash and cash equivalents at end of period                            $  1,275    $  1,272
                                                                      ========    ========

Supplemental disclosures:
Cash paid for:
    Interest                                                          $ 12,052    $ 11,568
    Income taxes                                                      $    572    $    794

Non-cash transactions:
    Equipment acquired under capitalized leases                       $    569    $   --


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


                                      -5-
<PAGE>

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


1.   ORGANIZATION AND OTHER MATTERS

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company ("Kelso"), was merged (the "Merger") with and into
Del Laboratories, Inc., a Delaware corporation ("Del" ), pursuant to an
Agreement and Plan of Merger, dated July 1, 2004 (the "Merger Agreement"), by
and among Sub, Del and DLI Holding Corp., a Delaware corporation. 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 which, in turn, is
owned by DLI Holding Corp. 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, Del issued 1,000 common shares with a $.01
par value. 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, DLI Holding Corp., DLI Holding II Corp. and Del.

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 2006 Annual Report on Form 10-K. Users of financial information
produced for interim periods are encouraged to refer to the footnotes contained
in the 2006 Annual Report on Form 10-K when reviewing interim financial results.
Since December 31, 2006, there have been no significant changes to the Company's
significant accounting policies or to the related assumptions and estimates
involved in applying these policies, except as described in the following
paragraph.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB No. 109" ("FIN No. 48"). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN No. 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company adopted the provisions of FIN No. 48 effective January
1, 2007. As a result of the adoption of FIN No. 48, the Company recorded a
$1,289 increase in the net liability for unrecognized tax benefits, which as
required, was accounted for as an increase to the January 1, 2007 accumulated
deficit.

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.




                                      -6-
<PAGE>

Certain reclassifications were made to prior year amounts in order to conform to
the current year presentation. The provision for excess and slow moving
inventory, previously included in the consolidated statements of cash flows in
inventories as net cash provided by operating activities, has been reclassified
as a separate line item, provision for excess and slow moving inventory, in net
cash provided by operating activities.

3.   RESTATEMENTS

The Company's consolidated statement of operations and cash flows for the three
months ended March 31, 2006 included in this Quarterly Report on Form 10-Q have
been restated, principally as a result of understatements of certain customer
liabilities relating to prior financial periods. The understatements of customer
liabilities pertained to reserves required for future sales returns and
markdowns due to incorrect assumptions and methodology and an accrual required
for cooperative and promotional advertising programs. The Company also corrected
certain other errors previously considered immaterial individually and in the
aggregate. Such restatements were previously disclosed in Note 3 of the
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 2006.

The following table presents the effects of the restatements made to the
Company's previously reported consolidated statement of operations for the first
quarter of 2006 for the errors described above.

STATEMENT OF OPERATIONS DATA

                                           Three Months Ended March 31, 2006
                                        ----------------------------------------
                                        AS PREVIOUSLY
                                          REPORTED      ADJUSTMENTS     RESTATED
                                          --------      -----------     --------

Net sales                                 $92,125        $  1,045 (a)  $ 93,170
Selling and administrative expenses        41,949            (530)(b)    41,419
Operating income                            1,502           1,575         3,077
Loss before taxes                          (7,332)          1,575        (5,757)
Benefit from income taxes                  (2,823)            719 (c)    (2,104)
Net loss                                   (4,509)            856        (3,653)

(a)  Adjustment recorded to reduce the reserves for future sales returns and
     markdowns and the liability for cooperative and promotional advertising.
(b)  Adjustment recorded to reduce the liability for cooperative and promotional
     advertising and for the correction of other immaterial errors.
(c)  Adjustment recorded to reflect the income tax effect of the adjustments
     recorded in footnotes (a) and (b).

As previously disclosed, the Company was unable to file its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 by the required filing date of
May 15, 2007 as the Company determined that it was necessary to re-evaluate its
customer liabilities pertaining to reserves required for future sales returns
and markdowns. The Company has completed this re-evaluation and concluded that
immaterial adjustments are required to previously reported amounts and that it
has made such corrections through an adjustment (increase) to its customer
liability reserves of $209 in the quarter ended March 31, 2007.




                                      -7-
<PAGE>

4.   INVENTORIES

The components of inventories were as follows:

                                                       March 31,    December 31,
   GROSS INVENTORIES                                     2007           2006
                                                      --------       --------

   Raw materials                                      $ 57,177       $ 52,803
   Work in process                                       7,883          5,687
   Finished goods                                       80,748         80,896
                                                      --------       --------
   Total gross inventories                             145,808        139,386

   Reserve for excess and slow moving inventories       43,757         44,324
                                                      --------       --------

   Inventories, net                                   $102,051       $ 95,062
                                                      ========       ========

Inventories are valued at the lower of cost (principally first-in/first-out) or
market value. The Company records an inventory obsolescence reserve to the cost
of inventories based upon its forecasted plans to sell or scrap, historical and
projected disposal rates and physical condition of the inventories. This reserve
is calculated using an estimated obsolescence percentage applied to the
inventories based on age, historical trends and requirements to support
forecasted sales. In addition, the Company may establish specific reserves for
future known or anticipated events. These reserves 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, retailer consolidations, fashion-oriented color cosmetic
trends or competitive conditions differ from expectations.

In accordance with SFAS No. 151, "Inventory Costs", the Company charged $1,027
to cost of goods sold during the three months ended March 31, 2006 relating to
unabsorbed overhead costs in connection with the closure of the Little Falls
manufacturing facility (Note 10).

5.   INTANGIBLES

Trade names have an indefinite life and relate to several of the Company's
product lines, including SALLY HANSEN(R), LACROSS(R), N.Y.C. NEW YORK COLOR(R),
CORNSILK(R), ORAJEL(R), DERMAREST(R), STYE(TM), GENTLE NATURALS(R) and
PRONTO(R). 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.

The components of intangibles arising from acquisitions were as follows:

                                                     MARCH 31, 2007
                                                     --------------
                                            GROSS
                                          CARRYING    ACCUMULATED      NET BOOK
                                            VALUE     AMORTIZATION       VALUE
                                          --------       --------       --------
    Trade names                           $159,100       $   --         $159,100
    Customer relationships                 105,000         11,375         93,625
                                          --------       --------       --------

                                          $264,100       $ 11,375       $252,725
                                          ========       ========       ========


                                                    DECEMBER 31, 2006
                                                    -----------------
                                            GROSS
                                          CARRYING    ACCUMULATED      NET BOOK
                                            VALUE     AMORTIZATION       VALUE
                                          --------       --------       --------
    Trade names                           $159,100       $   --         $159,100
    Customer relationships                 105,000         10,063         94,937
                                          --------       --------       --------

                                          $264,100       $ 10,063       $254,037
                                          ========       ========       ========


                                      -8-
<PAGE>

Amortization expense was $1,312 for the three months ended March 31, 2007 and
2006. The estimated amortization expense for the years ending December 31, 2007,
2008, 2009, 2010 and 2011 is $5,250 in each of the five years.



6.   INCOME TAXES

The Company adopted the provisions of FIN No. 48 effective January 1, 2007. As a
result of the adoption of FIN No. 48, the Company recorded a $1,289 increase in
the net liability for unrecognized tax benefits, which as required, was
accounted for as an increase to the January 1, 2007 accumulated deficit. The
$1,289 increase in the net liability for unrecognized tax benefits was recorded
as a $439 increase in income taxes payable and a $850 increase in net deferred
tax liabilities. As of January 1, 2007, the gross amount of the liability for
unrecognized tax benefits was $3,675. If these unrecognized tax benefits were
recognized, $3,675 would impact the effective tax rate.

The Company recognizes interest expense and penalties related to the above
unrecognized tax benefits within income tax expense. The Company has accrued
interest and penalties of approximately $128 as of March 31, 2007.

The Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. The number of years
that are subject to examination by tax authorities varies depending on the tax
jurisdiction. The Company's major taxing jurisdictions include the U.S and
Canada. The Company is no longer subject to U.S. federal income tax examinations
for years before 2002. The Company's U.S. federal income tax returns for 2002
through January 27, 2005 are currently being examined. With respect to state and
local jurisdictions and countries outside of the United States, with limited
exceptions, the Company and it subsidiaries are no longer subject to income tax
audits for years prior to 2000.

The Company's estimated tax liability is expected to change during the next 12
months as examinations of its tax returns are completed and the Company files
various returns to settle tax liabilities. The Company believes that any
additional taxes or related interest over the amounts accrued will not have a
material effect on its consolidated financial condition, results of operations
or cash flows. However, resolution of these matters involves uncertainties and
there can be no assurance with respect to the amount or timing of any additional
taxes or related interest.

The Company recorded a provision for income taxes of $1,067 during the three
months ended March 31, 2007 based on the Company's expected effective tax rate
of 41.9% for the year ending December 31, 2007. The increase in the effective
income tax rate is primarily due to a greater impact of projected permanent
items on foreign book income as compared to the previous year.

The Company recorded an income tax benefit of $2,104 (restated) during the three
months ended March 31, 2006 based on the Company's expected effective tax rate
of 36.5% for the year ended December 31, 2006.

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
March 31, 2007 and December 31, 2006 as the Company believes it is more likely
than not that the net deferred tax assets will be realized.


                                      -9-
<PAGE>

7.   LONG - TERM DEBT

     Long - term debt consisted of the following:

                                                         March 31,  December 31,
                                                           2007         2006
                                                         --------   ------------

     8% senior subordinated notes, net of unamortized
        discount of $859 in 2007 and $897 in 2006,
        due in 2012                                        $174,141   $174,103
     Senior secured floating rate notes, due in 2011        185,000    185,000
     Revolving credit facility                               18,000     10,000
     Mortgage on land and buildings                           1,191      1,194
     Obligations under capital leases                           557        107
                                                           --------   --------
                                                            378,889    370,404
     Less current portion                                       259        165
                                                           --------   --------
                                                           $378,630   $370,239
                                                           ========   ========

The $85,000 asset-based revolving credit facility ("the ABL Credit Facility")
requires the Company to enter into interest rate protection agreements to
provide interest rate protection for a minimum of 45% of the Company's
consolidated funded indebtedness for two years. Effective February 1, 2006, the
Company entered into a cap/floor collar agreement (the "Collar") with JPMorgan
Chase Bank, N.A to provide the required interest rate protection and to manage
its exposure to changes in LIBOR. The Collar is for a notional amount of
$100,000, expires on February 1, 2009 and has a cap rate of 5.5% and a floor
rate of 4.29%. The Collar has been designated as a cash flow hedge of the
variability of the cash flows due to changes in LIBOR and has been deemed to be
highly effective. Accordingly, the Company records the fair value of the Collar
as an asset or liability on its consolidated balance sheet, and any unrealized
gain or loss is included in accumulated other comprehensive income. As of March
31, 2007, the Company recorded a liability of $132 in the accompanying
consolidated balance sheet and recorded an after-tax net loss of $83 and an
after-tax net gain of $169 in accumulated other comprehensive income during the
three months ended March 31, 2007 and 2006, respectively. No hedge
ineffectiveness was recorded during the three months ended March 31, 2007 and
2006.

On March 31, 2007, the Company entered into a Waiver and Consent to the ABL
Credit Facility. Among other things, the Waiver and Consent (i) waived certain
Defaults or Events of Default relating to any potential restatement or revision
of the Company's consolidated financial statements delivered prior to the date
of the Waiver and Consent, and (ii) extended the date on which audited financial
statements with respect to the fiscal year ended December 31, 2006, and certain
other documents under the ABL Credit Facility, were required to be delivered to
April 30, 2007 from March 31, 2007. The Company delivered its audited financial
statements for the fiscal year ended December 31, 2006 and all other required
documents under the ABL Credit Facility to its lenders on April 30, 2007.

On May 15, 2007, the Company entered into a Second Waiver and Consent to the ABL
Credit Facility. Among other things, the Second Waiver and Consent (i) waived
certain Defaults or Events of Default relating to any potential restatement or
revision of the Company's consolidated financial statements delivered prior to
the date of the Second Waiver and Consent, and (ii) extended the date on which
unaudited financial statements for the three months ended March 31, 2007, and
certain other documents under the ABL Credit Facility, were required to be
delivered to June 15, 2007 from May 15, 2007.

On June 15, 2007, the Company entered into a Third Waiver and Consent to the ABL
Credit Facility. Among other things, the Third Waiver and Consent (i) waived
certain Defaults or Events of Default relating to any potential restatement or
revision of the Company's consolidated financial statements delivered prior to
the date of the Third Waiver and Consent, and (ii) extended the date on which
unaudited financial statements for the three months ended March 31, 2007, and
certain other documents under the ABL Credit Facility, were required to be
delivered to July 10, 2007 from June 15, 2007.


                                      -10-
<PAGE>


On June 20, 2007, the Company received (i) a notice of default from Wells Fargo,
National Association (the "Subordinated Notes Trustee"), as trustee under the
Company's indenture (the "Subordinated Notes Indenture") for the Company's 8%
Senior Subordinated Notes due 2012 (the "Subordinated Notes") and (ii) a notice
of default from Wells Fargo, National Association (together with the
Subordinated Notes Trustee, the "Trustees"), as trustee under the Company's
indenture (the "Floating Rate Notes Indenture" and, together with the
Subordinated Notes Indenture, the "Indentures") for the Company's Senior Secured
Floating Rate Notes due 2011 (the "Floating Rate Notes" and, together with the
Subordinated Notes, the "Notes").

Under Section 4.03(a) of the Indentures, the Company was required to file its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (the "Form
10-Q") within the time period specified by the SEC's rules and regulations. The
Trustee for each Indenture provided the notice of default to notify the Company
that it was in violation of Section 4.03(a) of the respective Indenture as a
result of the delay in the filing of the Form 10-Q, as described in Note 3
above, and to demand that the Company remedy the default.

Each Indenture provides that the Company has 30 days from receipt of a notice of
default to cure such default before an event of default occurs under the
Indenture. If an event of default occurs, the respective Trustee or the Holders
of 25% in aggregate principal amount of the Subordinated Notes or the Floating
Rate Notes, as the case may be, may declare the applicable Notes to be due and
payable immediately. The Company has cured the default with respect to each
Indenture as of July 6, 2007 by filing this report.

In January 2007, the Company entered into a capital lease agreement relating to
certain machinery and equipment. The lease is payable in monthly installments of
$12, including interest at 6.77%, maturing in June 2011.

8.   EMPLOYEE RETIREMENT PLANS

     (a)     PENSION PLANS

The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees: the Employees' Pension Plan and the
LaCross Pension Plan. The Employees' Pension Plan formula is based on years of
service and the employee's compensation during the five years before retirement.
The LaCross Pension Plan formula is based on years of service. The LaCross
Pension 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 Pension 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. In November 2006, the Board of Directors of
the Company approved the termination of the LaCross Pension Plan. The Company
has applied for a determination letter from the Internal Revenue Service for
approval of the termination of the LaCross Pension Plan. As a result of the
closure of the Company's Little Falls facility (see Note 10 for further
information), there was a partial curtailment of the Employees' Pension Plan,
resulting in a reduction of the benefit obligation of $1,356, a reduction in the
unrecognized net actuarial loss of $362 and the recording of a benefit of $994
during the third quarter of 2006.

Effective April 1, 2007 (approved and adopted on January 15, 2007 by the Board
of Directors of the Company), the Company amended the Employees' Pension Plan.
As a result of this amendment, the plan is closed to new employees and the
accrual of future benefits to current employees has been discontinued. All
retirement benefits that employees earned as of April 1, 2007 have been fully
preserved. Employees' ongoing service with the Company will continue to be
credited for vesting purposes. The amendment of the Employees' Pension Plan
resulted in a curtailment of the plan. As a result of this curtailment, the
Company recorded a reduction in the benefit obligation of $10,285, a reduction
in the unrecognized net actuarial loss of $4,865 and a benefit of $5,420 during
the first quarter of 2007.

                                      -11-
<PAGE>


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.

COMPONENTS OF NET PERIODIC BENEFIT COST

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


                                             Three Months Ended March 31, 2007

                                           EMPLOYEES'       LACROSS
                                          PENSION PLAN   PENSION PLAN     SERP
                                          ------------   ------------     ----

Service cost                                 $  --         $  --         $     7
Interest cost                                    715            16           104
Expected return on plan assets                  (780)          (15)         --
Recognized net loss                             --            --              30
Curtailment                                   (5,420)         --            --
                                             -------       -------       -------

Net periodic cost (benefit)                  $(5,485)      $     1       $   141
                                             =======       =======       =======


                                             Three Months Ended March 31, 2006

                                           EMPLOYEES'       LACROSS
                                          PENSION PLAN   PENSION PLAN     SERP
                                          ------------   ------------     ----

Service cost                                 $ 1,016       $  --         $     3
Interest cost                                    716            17           103
Expected return on plan assets                  (718)          (16)         --
Recognized net loss                             --            --              32
                                             -------       -------       -------

Net periodic cost                            $ 1,014       $     1       $   141
                                             =======       =======       =======



     (b)  EMPLOYEE 401 (K) SAVINGS PLAN

The Company maintains an Employee 401(k) Savings Plan (the "401(k) Plan"). The
401(k) plan is a defined contribution plan which is administered by the Company.
All regular, full-time employees are eligible for voluntary participation on the
first day of the month following the date of hire and having attained the age of
twenty-one. The 401(k) Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. Plan participants are
allowed to contribute a specified percentage of their base salary. The Company
retains the right to make optional contributions for any plan year. Optional
contributions were not made by the Company in 2007 or 2006.

The 401(K) plan has been redesigned, effective April 2, 2007, as a result of the
Company's amendment of its Employees' Pension Plan. The following represent the
material changes to the 401(K) plan: (i) automatic enrollment for all eligible
employees; (ii) Company matching contributions of employee's contributions up to
3% of eligible compensation, and 50% of the next 2% contributed; and (iii) a
Company additional automatic contribution of 3% of eligible compensation for
employees who on April 1, 2007 were at least 50 years of age and had 10 or more
years of vesting service.


                                      -12-
<PAGE>


9.   SHAREHOLDERS' EQUITY

     (a)      STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based
Payment". SFAS No. 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 financial statements. The Company adopted SFAS 123(R) using the modified
prospective transition method. Accordingly, the Company applied the provisions
of SFAS No. 123(R) to all awards granted subsequent to December 31, 2005 and
will apply the provisions to awards previously granted to the extent that these
awards are subsequently modified, repurchased or cancelled.


OPTION INCENTIVE PLAN

Effective January 27, 2005, DLI Holding Corp. adopted a new stock option
incentive plan (the "Option Incentive Plan"). The Option Incentive Plan provides
for grants of two types of options to officers or key employees of the Company:
Service Options and Exit Options.

Under the Option Incentive Plan, 180,000 options are reserved for issuance which
represents approximately 4.3% of the outstanding shares of DLI Holding Corp.
common stock as of the effective date of the Merger. Under the Incentive Plan,
33% of the granted options are Service Options and 67% are Exit Options.

A summary of option activity under the Option Incentive Plan as of March 31,
2007 and changes during the three months ended March 31, 2007 is presented
below:

                                                           WEIGHTED-
                                                WEIGHTED-  AVERAGE
                                                AVERAGE    REMAINING   AGGREGATE
                                                EXERCISE  CONTRACTUAL  INTRINSIC
        SERVICE OPTIONS               SHARES     PRICE       TERM      VALUE (1)
        ---------------               ------     -----       ----      ---------


Outstanding at December 31, 2006      44,417     $35.00                 $   667
     Granted                          12,233      50.00                    --
     Exercised                          --            --                   --
     Forfeited                          --                                 --
                                     -------                            -------
Outstanding at March 31, 2007         56,650     $38.24   9.1 years     $   667
                                     =======     ======   =========     =======

Exercisable at March 31, 2007         21,678     $35.00   8.9 years     $   325
                                     =======     ======   =========     =======



                                                           WEIGHTED-
                                                WEIGHTED-  AVERAGE
                                                AVERAGE    REMAINING   AGGREGATE
                                                EXERCISE  CONTRACTUAL  INTRINSIC
        EXIT OPTIONS                  SHARES     PRICE       TERM      VALUE (1)
        ---------------               ------     -----       ----      ---------

Outstanding at December 31, 2006      88,833     $35.00                 $ 1,333
     Granted                          24,467      50.00                    --
     Exercised                          --                     --          --
     Forfeited                          --                     --          --
                                     -------                            -------
Outstanding at March 31, 2007        113,300     $38.24   9.1 years     $ 1,333
                                     =======     ======   =========     =======

(1) The intrinsic value is the amount by which the current market value of the
underlying stock exceeds the exercise price of the option. Current market value
was developed in consultation with independent valuation specialists.


                                      -13-
<PAGE>


The weighted-average grant-date fair value of Service Options granted during the
three months ended March 31, 2007 and 2006 was $16.63 and $13.17, respectively.
The weighted-average grant-date fair value of Exit Options granted during the
three months ended March 31, 2007 and 2006 was $13.21 and $9.65, respectively.

The Company recorded compensation expense of $53 and $168 relating to the
Service Options for the three months ended March 31, 2007 and 2006,
respectively. The Company has not recorded compensation expense relating to the
Exit Options as the Company has determined it is not probable that the
performance conditions contained in the Exit Options will be achieved.
Compensation expense relating to the fair value of the Exit Options will be
measured and recorded upon the occurrence of a change in control. As of March
31, 2007, the total unrecognized compensation cost related to the non-vested
Service Options was $425 and the related weighted-average period over which this
cost is expected to be recognized is approximately 2.1 years.

The fair value of each Service Option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions in the calculations for the three months ended March 31, 2007:
dividend yield 0%; expected life of 2.9 years; risk-free interest rate 4.62%;
and expected volatility of 42.5%. The weighted average assumptions used in the
calculations for the three months ended March 31, 2006 were: dividend yield 0%;
expected life of 3.9 years; risk-free interest rate 4.71%; and expected
volatility of 45%. Because the Company's common stock is not publicly traded,
the expected volatility used was determined based on an examination of the
historical volatility of the stock price of the Predecessor Company; the
historical and implied volatility of the stock prices of selected comparable
companies and the nature of those companies; and other relevant factors.

The fair value of each Exit Option granted was estimated on the date of grant
using a lattice-based valuation model with the following weighted average
assumptions in the calculations for the three months ended March 31, 2007:
dividend yield 0%; expected life of 2.9 years; early exercise factor at the time
at which Kelso would sell the Company to generate a multiple of 2.8 times their
initial investment; termination rate of 1.5%; risk-free interest rate 4.62%; and
expected volatility of 42.5%. The weighted average assumptions used in the
calculations for the three months ended March 31, 2006 were: dividend yield 0%;
expected life of 3.9 years; early exercise factor at the time at which Kelso
would sell the Company to generate a multiple of 2.8 times their initial
investment; termination rate of 1.5%; risk-free interest rate 4.71%; and
expected volatility of 45%.

OVERRIDE UNITS

Certain of the Company's executives made an investment in DLI LLC, and have been
granted certain profit interests (the "Override Units") in DLI LLC, the indirect
parent of the Company. The Override Units have two sub-classes: Operating Units
and Value Units. Subject to forfeiture and participation provisions (including
the applicable Benchmark Amount of $32.718857) as detailed in the DLI LLC
Agreement, the holders of Override Units will have voting rights with respect to
their Override Units and shall have the rights with respect to profits and
losses of DLI LLC and distributions from DLI LLC as set forth in the DLI LLC
Agreement. The Override Units are not convertible into common stock and are not
saleable or generally transferable.

DLI LLC's board approved 294,486 Override Units, as defined available for grant,
of which 201,778 Override Units were granted as of December 31, 2005 and an
additional 92,707 Override Units were granted on January 31, 2006. The Override
Units were granted to Company executives at no cost to the executives.


                                      -14-
<PAGE>


A summary of the Override Units granted as of March 31, 2007 and changes during
the three months ended March 31, 2007 is presented below:

                                                               GRANT-DATE
              OPERATING UNITS                         UNITS    FAIR VALUE
              ---------------                         -----    ----------

Operating Units subject to forfeiture at
  December 31, 2006                                   47,717     $14.30
     Granted                                            --         --
     Exempt from forfeiture                           (7,726)     14.37
     Forfeited                                          --         --
                                                     -------
Operating Units subject to forfeiture at
  March 31, 2007                                      39,991     $14.28
                                                     =======     ======


                                                               GRANT-DATE
           VALUE UNITS                                UNITS    FAIR VALUE
           -----------                                -----    ----------

Value Units subject to forfeiture at
  December 31, 2006                                  196,323     $13.08
     Granted                                            --         --
     Exempt from forfeiture                             --         --
     Forfeited                                          --         --
                                                     -------
Value Units subject to forfeiture at
  March 31, 2007                                     196,323     $13.08
                                                     =======     ======

Total compensation expense recorded in connection with the Operating Units was
$115 and $55 (restated) for the three months ended March 31, 2007 and 2006,
respectively. The Company has not recorded compensation expense relating to the
Value Units as the Company has determined it is not probable that the
performance conditions contained in the Value Units will be achieved.
Compensation expense relating to the fair value of the Value Units will be
measured and recorded upon the occurrence of a change in control. As of March
31, 2007, the total unrecognized compensation cost related to Operating Units
subject to forfeiture was $495 and the related weighted-average period over
which this cost is expected to be recognized is approximately 1.3 years.

In accordance with APB No. 25, the fair value of each Operating Unit and Value
Unit granted prior to January 1, 2006 was estimated on the date of grant using
the Black-Scholes option-pricing model. The fair value of each Operating Unit
granted subsequent to January 1, 2006 was estimated on the date of grant using
the Black-Scholes option-pricing model. The fair value of each Value Unit
granted subsequent to January 1, 2006 was estimated on the date of grant using a
lattice-based valuation model.


(b) STOCK REPURCHASE

On February 15, 2007, DLI Holding Corp. and DLI LLC entered into an Equity
Settlement Agreement (the "Equity Settlement Agreement") with William McMenemy,
a director and former officer of the Company. Pursuant to the Equity Settlement
Agreement, DLI Holding Corp. agreed to pay Mr. McMenemy a total of $2,020 to
repurchase (i) 571.42 shares of the common stock of DLI Holding Corp. (the
"Shares") and (ii) options to purchase 134,821 shares of the common stock of DLI
Holding Corp. ("the Options"). The payment was funded by the Company through a
distribution. Also in connection with this transaction, Mr. McMenemy agreed to
forfeit the 5,454.42 operating units he held in DLI LLC. The Shares were
repurchased pursuant to the terms of the Transition Arrangements Agreement,
dated as of August 15, 2005, among Mr. McMenemy, DLI Holding Corp. and DLI LLC.
The Options were repurchased pursuant to the Rollover Stock Option Agreement,
dated as of January 27, 2005, between DLI Holding Corp. and Mr. McMenemy. The
Shares, the Options, and the operating units in DLI LLC constituted Mr.
McMenemy's entire equity interest in the Company and its affiliates.



                                      -15-
<PAGE>


(c) SALE OF STOCK

On May 18, 2007, certain key employees and advisers of the Company purchased a
total of 40,711 shares of the common stock of DLI Holding Corp. for an aggregate
purchase price of $1,425.

10. RESTRUCTURING AND SEVERANCE

In August 2005, the Company announced a workforce reduction program implemented
in September 2005 to streamline the Company's organization and reduce costs.
Additional severance costs of $598 and $116 were recorded during fiscal 2006 and
in the first quarter of 2007, respectively, of which $680 was paid as of March
31, 2007. The balance has been paid as of May 31, 2007.

On January 13, 2006, the Company announced that it planned to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
transferred a majority of these manufacturing operations to its Rocky Point,
North Carolina manufacturing facility and outsourced the remainder. The Company
has converted the Little Falls facility to a warehouse to store a portion of its
inventory and is in the process of closing several of its short-term leased
warehouse facilities in upstate New York.

Pursuant to the Company's formal severance policy, a charge of $1,243 for
severance costs and related benefits for approximately 289 employees was
recorded in December 2005 in accordance with SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112"). Additional severance
benefits earned for future services by employees being terminated were
recognized as a charge in the consolidated financial statements as such
severance benefits were earned. During the three months ended March 31, 2006, a
charge of $102 was recorded for such earned benefits, in addition to an
adjustment of $44 to the initial accrual. Also during the three months ended
March 31, 2006, the Company recorded charges to cost of goods sold of $107,
related to moving costs for relocated inventory, break down, moving and start-up
costs associated with equipment transfers and other related charges. As of March
31, 2007, $1,387 of severance benefits has been paid and all employees have been
terminated. During 2007, $13 of relocation costs was expensed as incurred. All
remaining cash payments relating to severance costs and related benefits have
been paid as of June 30, 2007.

A summary of the activity in the accrual for the Little Falls restructuring is
as follows:


                Balance at December 31, 2006                       $ 188
                            Provision                                --
                            Payments                                (166)
                                                                   -----
                Balance at March 31, 2007                          $  22
                                                                   =====



                                      -16-
<PAGE>


On February 12, 2007, the Company announced plans to transfer the manufacturing
activities currently performed at its plant in Canajoharie, New York (the
"Canajoharie Plant") to independent contractors in North Carolina. The transfer
resulted in the termination of approximately 71 employees, which was
conducted in phases which began in mid April 2007, and was completed as of June
30, 2007. The Company is currently listing the Canajahorie Plant for sale.
Pursuant to the Company's formal severance policy, a charge of $643 for
severance costs and related benefits was recorded during the first quarter of
2007 in accordance with SFAS No. 112. Additional severance benefits earned for
future services by employees being terminated will be recognized as a charge in
the consolidated financial statements as such severance benefits are earned. The
Company estimates that approximately $63, all in the Cosmetic segment, will be
incurred for additional severance costs during 2007. Cash payouts are expected
to be completed by the end of 2007. As of March 31, 2007, no employees have been
terminated and no severance benefits have been paid.

11. COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>

                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                                  2007       2006
                                                                  ----       ----
                                                                            Restated

<S>                                                              <C>        <C>
Net earnings (loss)                                              $ 1,479    $(3,653)
Other comprehensive income (loss)
   Foreign currency translation gain / (loss)                         94        (63)
   Change in fair value of interest rate Collar,  net of taxes       (83)       169
                                                                 -------    -------

Total comprehensive income (loss)                                $ 1,490    $(3,547)
                                                                 =======    =======
</TABLE>





                                      -17-
<PAGE>

12. SEGMENT INFORMATION

The Company operates in two segments, Cosmetic and Pharmaceutical that have been
organized by the products 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 proprietary 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.


                                                         THREE MONTHS ENDED
                                                              MARCH 31,
                                                       2007              2006
                                                       ----              ----
                                                                       Restated

       Net sales:
            Cosmetic                                 $  80,334        $  73,266
            Pharmaceutical                              23,681           19,904
                                                     ---------        ---------
            Consolidated                             $ 104,015        $  93,170
                                                     =========        =========

       Operating income(1):
            Cosmetic                                 $   7,500        $   1,411
            Pharmaceutical                               4,481            1,666
                                                     ---------        ---------
            Consolidated                                11,981            3,077

       Other income (expense):
            Interest expense, net                       (9,439)          (8,843)
            Other income (expense), net                      4                9
                                                     ---------        ---------

       Income (loss) before income taxes             $   2,546        $  (5,757)
                                                     =========        =========

       Depreciation and amortization:
            Cosmetic                                 $   3,385        $   2,865
            Pharmaceutical                                 835              786
                                                     ---------        ---------
            Consolidated                             $   4,220        $   3,651
                                                     =========        =========

       Amortization of display fixtures:
            Cosmetic                                 $   2,707        $   2,261
            Pharmaceutical                                --               --
                                                     ---------        ---------
            Consolidated                             $   2,707        $   2,261
                                                     =========        =========


(1)  Operating income for the three months ended March 31, 2007 and 2006
     includes severance expense of $759 and $146, respectively, which was all
     charged to the Cosmetic segment. The pension curtailment gain of $5,420 for
     the three months ended March 31, 2007 was allocated $4,287 to the Cosmetic
     segment and $1,133 to the Pharmaceutical segment.

13.   SALE OF PROPERTY

In January 2007, the Company sold land and buildings located in Little Falls,
New York to an unrelated third party for gross proceeds of $2,999, less $228 in
closing costs and leased back the properties for a six year term. The land and
buildings had a net book value of $3,118 as of December 31, 2006. In connection
with this sale, the Company recorded an impairment loss of approximately $347 in
fiscal 2006.

In June 2007, the Company sold land and buildings located in Newark, New Jersey
to an unrelated third party for gross proceeds of $575, less $45 in closing
costs. The land and buildings had a net book value of $400, resulting in a gain
on the sale of approximately $130.



                                      -18-
<PAGE>

(14) Condensed Consolidating Financial Information

The Company's obligations related to its ABL Credit Facility, Floating Rate
Notes and 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 operations 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"). The accounting policies of the Issuer, Guarantor Subsidiaries
and the Non-Guarantor Subsidiaries are the same as those described for the
Company in the 2006 Annual Report on Form 10-K. See Note 3 for information
relating to the restatements.

<TABLE>
<CAPTION>

                           CONSOLIDATING BALANCE SHEET
                                 March 31, 2007


                                                                              GUARANTOR     NON-GUARANTOR
                                                                   ISSUER    SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                                   ------    ------------   ------------  ------------  ------------
           ASSETS

Current assets:
<S>                                                               <C>          <C>            <C>            <C>          <C>
     Cash and cash equivalents                                    $   1,368    $    (517)     $     424      $    --      $   1,275
     Accounts receivable                                             47,622        8,198          3,467           --         59,287
     Inventories                                                     82,102        8,544         11,869           (464)     102,051
     Deferred income taxes                                           24,217        5,083          1,042           --         30,342
     Prepaid expenses and other current assets                        3,597          473          2,542           --          6,612
                                                                  ---------    ---------      ---------      ---------    ---------
                     Total current assets                           158,906       21,781         19,344           (464)     199,567

Property, plant and equipment, net                                   36,119        1,549          3,732           --         41,400
Intercompany                                                        135,439     (116,106)       (19,333)          --           --
Intangibles arising from acquisitions, net                          167,403       85,322           --             --        252,725
Goodwill                                                             92,858       47,460          5,000           --        145,318
Other assets                                                         25,027         --            1,748           --         26,775
Note receivable                                                       6,430         --             --           (6,430)        --
Deferred income taxes                                                21,683         --              266           --         21,949
                                                                  ---------    ---------      ---------      ---------    ---------
                     Total assets                                 $ 643,865    $  40,006      $  10,757      $  (6,894)   $ 687,734
                                                                  =========    =========      =========      =========    =========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt                            $     198    $    --        $      61      $    --      $     259
     Accounts payable                                                28,139        3,383          3,152           --         34,674
     Accrued liabilities                                             40,406        6,200          2,625           --         49,231
                                                                  ---------    ---------      ---------      ---------    ---------
                     Total current liabilities                       68,743        9,583          5,838           --         84,164

Long-term debt, less current portion                                377,500         --            1,130           --        378,630
Long-term pension liability, less current portion                    13,512         --             --             --         13,512
Deferred liabilities                                                  1,506         --             --             --          1,506
Deferred income taxes                                                66,540       33,191            136           --         99,867
Note payable                                                           --           --            6,430         (6,430)        --
                                                                  ---------    ---------      ---------      ---------    ---------
                     Total liabilities                              527,801       42,774         13,534         (6,430)     577,679
                                                                  ---------    ---------      ---------      ---------    ---------

Shareholders' equity:
     Common stock $.01 par value, authorized
        1,000 shares; issued 1,000 shares                              --           --             --             --           --
     Additional paid-in capital                                     144,404         --                5           --        144,409
     Accumulated other comprehensive income (loss)                     (344)        --              776           --            432
     Accumulated deficit                                            (27,996)      (2,768)        (3,558)          (464)     (34,786)
                                                                  ---------    ---------      ---------      ---------    ---------

                     Total shareholders' equity                     116,064       (2,768)        (2,777)          (464)     110,055
                                                                  ---------    ---------      ---------      ---------    ---------


                     Total liabilities and shareholders' equity   $ 643,865    $  40,006      $  10,757      $  (6,894)   $ 687,734
                                                                  =========    =========      =========      =========    =========
</TABLE>

                                      -19-
<PAGE>


<TABLE>
<CAPTION>



                               CONSOLIDATING BALANCE SHEET
                                    DECEMBER 31, 2006

                                                                              GUARANTOR     NON-GUARANTOR
                                                                   ISSUER    SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                                   ------    ------------   ------------  ------------  ------------

Current assets:
<S>                                                               <C>          <C>           <C>             <C>          <C>
     Cash and cash equivalents                                    $     343    $    (599)    $     298       $    --      $      42
     Accounts receivable, net                                        49,088        9,799         2,676            --         61,563
     Inventories                                                     76,445        8,755        10,331            (469)      95,062
     Deferred income taxes                                           24,008        4,955         1,032            --         29,995
     Prepaid expenses and other current assets                        3,457          494         2,458            --          6,409
                                                                  ---------    ---------     ---------       ---------    ---------
                     Total current assets                           153,341       23,404        16,795            (469)     193,071

Property, plant and equipment, net                                   39,262        1,638         3,747            --         44,647
Intercompany                                                        134,931     (116,585)      (18,346)           --             --
Intangibles arising from acquisitions, net                          168,118       85,919          --              --        254,037
Goodwill                                                             92,858       47,460         5,000            --        145,318
Other assets                                                         25,801            1         1,860            --         27,662
Note receivable                                                       6,430         --            --            (6,430)        --
Deferred income taxes                                                24,776         --             263            --         25,039
                                                                  ---------    ---------     ---------       ---------    ---------
                     Total assets                                 $ 645,517    $  41,837     $   9,319       $  (6,899)   $ 689,774
                                                                  =========    =========     =========       =========    =========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt                            $     105    $    --       $      60       $    --      $     165
     Accounts payable                                                33,904        3,746         2,477            --         40,127
     Accrued liabilities                                             38,334        6,794         2,519            --         47,647
                                                                  ---------    ---------     ---------       ---------    ---------
                     Total current liabilities                       72,343       10,540         5,056            --         87,939

Long-term debt, less current portion                                369,105         --           1,134            --        370,239
Long-term pension liability, less current portion                    19,943         --            --              --         19,943
Deferred liabilities                                                  1,492         --            --              --          1,492
Deferred income taxes                                                65,964       32,356           135            --         98,455
Note payable                                                           --           --           6,430          (6,430)        --
                                                                  ---------    ---------     ---------       ---------    ---------
                     Total liabilities                              528,847       42,896        12,755          (6,430)     578,068
                                                                  ---------    ---------     ---------       ---------    ---------

Shareholders' equity:
     Common stock $.01 par value, authorized
        1,000 shares; issued 1,000 shares                              --           --            --              --           --
     Additional paid-in capital                                     146,256         --               5            --        146,261
     Accumulated other comprehensive income (loss)                     (260)        --             681            --            421
     Accumulated deficit                                            (29,326)      (1,059)       (4,122)           (469)     (34,976)
                                                                  ---------    ---------     ---------       ---------    ---------

                     Total shareholders' equity                     116,670       (1,059)       (3,436)           (469)     111,706
                                                                  ---------    ---------     ---------       ---------    ---------


                     Total liabilities and shareholders' equity   $ 645,517    $  41,837     $   9,319       $  (6,899)   $ 689,774
                                                                  =========    =========     =========       =========    =========
</TABLE>

                                      -20-
<PAGE>

<TABLE>
<CAPTION>


                      CONSOLIDATING STATEMENT OF OPERATIONS
                        Three Months Ended March 31, 2007

                                                        GUARANTOR      NON-GUARANTOR
                                              ISSUER   SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS    CONSOLIDATED
                                              ------   ------------    ------------   ------------    ------------

<S>                                         <C>          <C>            <C>            <C>            <C>
Net sales                                   $  71,187    $  22,579      $  10,249      $    --        $ 104,015

Cost of goods sold                             39,775        6,720          4,431             (5)        50,921
                                            ---------    ---------      ---------      ---------      ---------

Gross profit                                   31,412       15,859          5,818              5         53,094

Selling and administrative expenses            23,533       17,096          5,145           --           45,774
Gain on pension curtailment                    (5,420)        --             --             --           (5,420)
Severance expenses                                759         --             --             --              759
                                            ---------    ---------      ---------      ---------      ---------

      Operating income (loss)                  12,540       (1,237)           673              5         11,981

Other income (expense):
      Interest expense, net                    (9,291)         113           (261)          --           (9,439)
      Other income (expense), net                 (61)          (1)            66           --                4
                                            ---------    ---------      ---------      ---------      ---------


Earnings (loss) before income taxes             3,188       (1,125)           478              5          2,546
Provision for (benefit from) income taxes       1,590         (437)           (86)          --            1,067
                                            ---------    ---------      ---------      ---------      ---------

      Net earnings (loss)                   $   1,598    $    (688)     $     564     $       5      $   1,479
                                            =========    =========      =========      =========      =========
</TABLE>


                                      -21-
<PAGE>



<TABLE>
<CAPTION>




                      CONSOLIDATING STATEMENT OF OPERATIONS
                        Three Months Ended March 31, 2006
                                    Restated

                                                     GUARANTOR       NON-GUARANTOR
                                            ISSUER   SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS    CONSOLIDATED
                                            ------   ------------    ------------   ------------    ------------

<S>                                         <C>         <C>            <C>               <C>         <C>
Net sales                                   $ 64,763    $ 18,795       $  9,612          $--         $ 93,170

Cost of goods sold                            38,176       5,933          4,419           --           48,528
                                            --------    --------       --------      --------        --------

Gross profit                                  26,587      12,862          5,193           --           44,642

Selling and administrative expenses           22,366      14,436          4,617           --           41,419
Severance expenses                               146        --             --             --              146
                                            --------    --------       --------      --------        --------

      Operating income (loss)                  4,075      (1,574)           576           --            3,077

Other income (expense):
      Interest expense, net                   (8,777)       --              (66)          --           (8,843)
      Other income (expense), net                 28          (2)           (17)          --                9
                                            --------    --------       --------      --------        --------


Earnings (loss) before income taxes           (4,674)     (1,576)           493           --           (5,757)
Provision for (benefit from) income taxes     (1,704)       (541)           141           --           (2,104)
                                            --------    --------       --------      --------        ---------

      Net earnings (loss)                   $ (2,970)   $ (1,035)      $    352          $--         $ (3,653)
                                            ========    ========       ========      ========        =========
</TABLE>


                                      -22-
<PAGE>

  <TABLE>
<CAPTION>

                                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                        Three Months Ended March 31, 2007



                                                                               GUARANTOR     NON-GUARANTOR
                                                                     ISSUER   SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS CONSOLIDATED
                                                                     ------   ------------   ------------  ------------ ------------
Cash flows from operating activities:
<S>                                                                   <C>        <C>            <C>          <C>          <C>
Net earnings (loss)                                                   $ 1,598    $  (688)       $   564      $     5      $ 1,479
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                           3,277        857             85            1        4,220
Amortization of display fixtures                                        2,583       --              124         --          2,707
Amortization of deferred financing fees and original issue discount       762       --             --           --            762
Non-cash stock compensation                                               168       --             --           --            168
Deferred income taxes                                                   3,682       (314)          --           --          3,368
Provision for excess and slow moving inventory                          1,901        354            326         --          2,581
Recovery from doubtful accounts                                          (188)      --             --           --           (188)
Gain on pension curtailment                                            (5,420)      --             --           --         (5,420)
Other non-cash operating items                                             70       --              (63)        --              7
Changes in operating assets and liabilities:
          Accounts receivable                                           1,653      1,601           (765)        --          2,489
          Inventories                                                  (7,557)      (143)        (1,761)          (5)      (9,466)
          Prepaid expenses and other current assets                      (140)        21            (61)        --           (180)
          Other assets                                                 (2,726)         1             (8)        --         (2,733)
          Accounts payable                                             (5,765)      (363)           649         --         (5,479)
          Accrued liabilities                                           1,577       (594)            81         --          1,064
          Deferred liabilities                                             14       --             --           --             14
          Pension liability (net)                                        (898)      --             --           --           (898)
          Intercompany receivables / payables                            (507)      (479)           996          (10)        --
                                                                      -------    -------        -------      -------      -------

            Net cash provided by (used in) operating activities        (5,916)       253            167           (9)      (5,505)
                                                                      -------    -------        -------      -------      -------

Cash flows provided by (used in) investing activities:
          Net proceeds from sale of property                            2,771       --             --           --          2,771
          Property, plant and equipment additions                      (1,778)      (171)           (34)        --         (1,983)
                                                                      -------    -------        -------      -------      -------

            Net cash provided by (used in) investing activities           993       (171)           (34)        --            788
                                                                      -------    -------        -------      -------      -------

Cash flows provided by (used in) financing activities:
          Principal borrowings under revolving credit facility, net     8,000       --             --           --          8,000
          Principal payments under mortgage                              --         --              (15)        --            (15)
          Distribution to DLI Holding Corp.                            (2,020)      --             --           --         (2,020)
          Payment of capital lease obligations                            (32)      --             --           --            (32)
                                                                      -------    -------        -------      -------      -------

            Net cash provided by (used in) financing activities         5,948       --              (15)        --          5,933
                                                                      -------    -------        -------      -------      -------

Effect of exchange rate changes on cash                                  --         --                8            9           17
                                                                      -------    -------        -------      -------      -------

Net increase in cash and cash equivalents                               1,025         82            126         --          1,233

Cash and cash equivalents at beginning of period                          343       (599)           298         --             42
                                                                      -------    -------        -------      -------      -------

Cash and cash equivalents at end of period                            $ 1,368    $  (517)       $   424      $  --        $ 1,275
                                                                      =======    =======        =======      =======      =======
</TABLE>


                                      -23-
<PAGE>


<TABLE>
<CAPTION>


                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        Three Months Ended March 31, 2006
                                    Restated
                                                                               GUARANTOR     NON-GUARANTOR
                                                                     ISSUER   SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS CONSOLIDATED
                                                                     ------   ------------   ------------  ------------ ------------
Cash flows from operating activities:
<S>                                                                   <C>         <C>         <C>         <C>         <C>
Net earnings (loss)                                                   $ (2,970)   $ (1,035)   $    351    $      1    $ (3,653)
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                            2,745         807         104          (5)      3,651
Amortization of display fixtures                                         2,119        --           142        --         2,261
Amortization of deferred financing fees and original issue discount        658        --          --          --           658
Non-cash stock compensation                                                223        --          --          --           223
Deferred income taxes                                                   (2,927)       --          --          --        (2,927)
Provision for excess and slow moving inventory                             566         534         131        --         1,231
Provision for doubtful accounts                                             45        --          --          --            45
Gain on sale of property                                                   (48)       --          --          --           (48)
Other non-cash operating items                                            --          --            39        --            39
Changes in operating assets and liabilities:
          Accounts receivable                                           (6,626)        435        (345)       --        (6,536)
          Inventories                                                      246        (421)     (1,047)       --        (1,222)
          Prepaid expenses and other current assets                      1,057         136        (337)       --           856
          Other assets                                                  (3,274)       --          (461)       --        (3,735)
          Accounts payable                                              (4,034)        181         616        --        (3,237)
          Accrued liabilities                                                3      (1,168)        253          (1)       (913)
          Pension liability (net)                                          212        --          --          --           212
          Intercompany receivables / payables                           (1,308)      1,361         (74)         21        --
                                                                      --------    --------    --------    --------    --------

            Net cash provided by (used in) operating activities        (13,313)        830        (628)         16     (13,095)
                                                                      --------    --------    --------    --------    --------

Cash flows provided by (used in) investing activities:
          Net proceeds from sale of property                                50        --          --          --            50
          Property, plant and equipment additions                       (1,810)        (43)        (18)       --        (1,871)
                                                                      --------    --------    --------    --------    --------

            Net cash used in investing activities                       (1,760)        (43)        (18)       --        (1,821)
                                                                      --------    --------    --------    --------    --------

Cash flows provided by (used in) financing activities:
          Principal borrowings under revolving credit facility, net     13,900        --          --          --        13,900
          Principal payments under mortgage                               --          --           (14)       --           (14)
          Payment of deferred financing fees                              (326)       --          --          --          (326)
          Contributed capital                                               40        --          --          --            40
          Payment of capital lease obligations                             (31)       --          --          --           (31)
                                                                      --------    --------    --------    --------    --------

            Net cash provided by (used in) financing activities         13,583        --           (14)       --        13,569
                                                                      --------    --------    --------    --------    --------

Effect of exchange rate changes on cash                                   --          --            33         (16)         17
                                                                      --------    --------    --------    --------    --------

Net increase (decrease) in cash and cash equivalents                    (1,490)        787        (627)       --        (1,330)

Cash and cash equivalents at beginning of period                         1,862        (434)      1,174        --         2,602
                                                                      --------    --------    --------    --------    --------

Cash and cash equivalents at end of period                            $    372    $    353    $    547    $   --      $  1,272
                                                                      ========    ========    ========    ========    ========

</TABLE>


                                      -24-
<PAGE>

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

OVERVIEW

The Company 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 the Company's 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 the
Company's 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 or Information Resources, Inc. ("IRI"), many of the
Company's brands have leading market positions in their product categories. In
the Company's 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 LACROSS(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) is a highly recognizable brand of value
cosmetics offering a complete collection of high quality products at opening
price points. In the Company's OTC pharmaceutical segment, 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. The Company's 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.

The Company believes that it has strong customer relationships with a
diversified group of prominent retailers and wholesalers 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.
The Company's in-house research and development departments focus on product
development, clinical and regulatory affairs and quality control.

The information below for the three months ended March 31, 2006 has been
adjusted to reflect the restatement of the Company's financial results which is
more fully described in Note 3, "Restatements" in the Notes to the Consolidated
Financial Statements.

As previously disclosed, the Company was unable to file its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 by the required filing date of
May 15, 2007 as the Company determined that it was necessary to re-evaluate its
customer liabilities pertaining to reserves required for future sales returns
and markdowns. The Company has completed this re-evaluation and concluded that
immaterial adjustments are required to previously reported amounts and that it
has made such corrections through an adjustment (increase) to its customer
liability reserves of $209 in the quarter ended March 31, 2007.


RECENT DEVELOPMENTS


RETIREMENT PLAN AMENDMENTS

Effective April 1, 2007 (approved and adopted January 15, 2007 by the Board of
Directors of the Company), the Company amended the Employees' Pension Plan. As a
result of this amendment, the plan is closed to new employees and the accrual of
future benefits to current employees has been discontinued. All retirement
benefits that employees earned as of April 1, 2007 have been fully preserved.
Employees' ongoing service with the Company will continue to be credited for
vesting purposes. The amendment of the Employees' Pension Plan resulted in a
curtailment of the plan. As a result of this curtailment, the Company recorded a
reduction in the benefit obligation of $10.3 million, a reduction in the
unrecognized net actuarial loss of $4.9 million and a benefit of $5.4 million
during the first quarter of 2007.


                                      -25-
<PAGE>

Effective April 2, 2007, the 401(k) plan has been redesigned as a result of the
Company's amendment of its Employees' Pension Plan. The following represent the
material changes to the 401(k) plan: (i) automatic enrollment for all eligible
employees; (ii) Company matching contributions of employee's contributions up to
3% of eligible compensation, and 50% of the next 2% contributed; and (iii) a
Company additional automatic contribution of 3% of eligible compensation for
employees who on April 1, 2007 were at least 50 years of age and had 10 or more
years of vesting service.

CLOSING OF THE MANUFACTURING ACTIVITIES AT THE CANAJOHARIE FACILITY

On February 12, 2007, the Company announced plans to transfer the manufacturing
activities currently performed at its plant in Canajoharie, New York (the
"Canajoharie Plant") to independent contractors in North Carolina. The transfer
resulted in the termination of approximately 71 employees, which was conducted
in phases which began in mid April 2007, and was completed as of June 30, 2007.
The Company is currently listing the Canajahorie Plant for sale. Pursuant to the
Company's formal severance policy, a charge of $0.6 million for severance costs
and related benefits was recorded during the first quarter of 2007 in accordance
with SFAS No. 112. Additional severance benefits earned for future services by
employees being terminated will be recognized as a charge in the consolidated
financial statements as such severance benefits are earned. The Company
estimates that approximately $0.1 million, all in the Cosmetic segment, will be
incurred for additional severance costs during 2007. Cash payouts are expected
to be completed by the end of 2007. As of March 31, 2007, no employees have been
terminated and no severance benefits have been paid.


OPERATIONAL INITIATIVES

In addition to the Company's focus on realizing cost savings, the Company is
committed to improving the efficiency of its operations. In mid-2005, the
Company engaged Synergetics Installations Worldwide, Inc., or Synergetics, a
leading management consulting firm specializing in providing supply chain
management advice to manufacturing companies, to assist the Company in realizing
previously identified cost savings as well as identifying and implementing
additional cost saving opportunities. The Company has substantially completed
the implementation of sales and operational process initiatives designed to
improve sales forecasting, demand planning and production scheduling, the
efficiency level of the manufacturing facilities, and the process of
identifying, evaluating and selling promotional products. The Company
anticipates incremental annualized cost savings in 2007 of approximately $6.0
million. The Company has incurred consulting fees and implementation costs
associated with its 2005 and 2006 cost savings activities of approximately $1.2
million and $3.7 million, respectively.

In the fourth quarter of 2006, the Company recorded an incremental $25.1 million
charge to cost of goods sold to increase its reserves for excess and slow moving
inventory. The $25.1 million change in estimate is a result of the execution of
various initiatives designed to enhance the value of the Company's brands;
specifically SALLY HANSEN(R) and ORAJEL(R). These initiatives are consistent
with the Company's revised strategic plan which was approved by senior
management and certain members of the Board of Directors in December 2006. The
Company undertook a process to evaluate its product mix, required inventory
levels to support the service level demands of its customers and the
appropriateness of its inventory reserves, in relation to the revised strategic
plan. This evaluation addressed the usage of existing inventory either within
current products, or through the production and sale of promotional inventory or
special products. A significant portion of the additional reserve resulted from
the Company (i) exiting non-core product lines, (ii) refining its sales
forecasting and demand planning activities, (iii) increasing the volume of
finished goods produced at third parties which hindered the usefulness of
existing inventory components, (iv) incurring increasing losses on the
disposition of certain slow moving products and (v) experiencing changes in
market conditions for close-out inventory product offerings.


                                      -26-
<PAGE>

Inventory reserves 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,
retailer consolidations, fashion - oriented color cosmetic trends or competitive
conditions differ from expectations.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
(Restated)

The following table sets forth the Company's results of operations for the three
months ended March 31, 2007 and 2006. See Note 3 to the Notes to the
Consolidated Financial Statements for additional information related to the
restatements.

                                                    Three Months Ended March 31,
                                                        2007             2006
                                                        ----             ----
                                                                     (Restated)
                                                               ($000)
Net Sales
      Cosmetic segment                                $  80,334      $  73,266
      Pharmaceutical segment                             23,681         19,904
                                                      ---------      ---------
Total net sales                                         104,015         93,170

Cost of goods sold                                       50,921         48,528
                                                      ---------      ---------

Gross profit                                             53,094         44,642

Selling and administrative expenses                      45,774         41,419
Gain on pension curtailment                              (5,420)           --
Severance expenses                                          759            146
                                                      ---------      ---------

Operating income                                         11,981          3,077

Other income (expense):
    Interest expense, net                                (9,439)        (8,843)
    Other income (expense), net                               4              9
                                                      ---------      ---------

Earnings (loss) before income taxes                       2,546         (5,757)
Provision for (benefit from) income taxes                 1,067         (2,104)
                                                      ---------      ---------
Net earnings (loss)                                   $   1,479      $  (3,653)
                                                      =========      =========

The Company's net sales for the three months ended March 31, 2007 were $104.0
million, an increase of $10.8 million, or 11.6% compared to net sales of $93.2
million for the three months ended March 31, 2006.

The Cosmetic segment of the business generated net sales for the three months
ended March 31, 2007 of $80.3 million, an increase of $7.0 million, or 9.6%
compared to net sales of $73.3 million for the three months ended March 31,
2006. Net sales increased primarily due to higher shipments of the SALLY
HANSEN(R) nail color, nail treatment and lip product lines, as well as higher
international net sales (a 24.8% increase over 2006), partially offset by lower
shipments in non-core product lines. As reported by IRI, the SALLY HANSEN(R)
brand remains the number one brand in the mass market nail care category with a
24.3% share of market for the quarter. In nail enamel, the SALLY HANSEN(R) brand
increased its number one market share position to a 41.4% share of market. SALLY
HANSEN(R) has the number one market share position in nail treatment with a
48.1% share of market for the quarter, down from 51.1% in the prior
year comparable quarter. This decrease is primarily attributable to the
significant growth in the anti-fungal category in which the Company does not
aggressively participate. The Company has increased its number one market share
position in bleaches and depilatories to a 37.6% share of market for the
quarter. LACROSS(R) has the number three market share position in nail and
beauty implements with a 14.8% share of the market for the quarter, a decrease
from the prior year comparable quarter due to the loss of a major mass market
customer due to aggressive competitor pricing.


                                      -27-
<PAGE>

The over-the-counter Pharmaceutical segment of the business generated net sales
for the three months ended March 31, 2007 of $23.7 million, an increase of $3.8
million, or 19.0% compared to net sales of $19.9 million for the three months
ended March 31, 2006. Net sales increased primarily due to higher shipments in
the ORAJEL(R) line of oral analgesics. ORAJEL(R), the core brand of the
Pharmaceutical segment maintained its leadership position in the oral analgesics
category with a 32.0% share of market for the first quarter, as reported by IRI.

Cost of goods sold for the three months ended March 31, 2007 was $50.9 million,
or 49.0% of net sales compared to $48.5 million or 52.1% of net sales for the
three months ended March 31, 2006. This decrease as a percentage of net sales
reflects cost savings achieved as a result of continued operational
improvements, higher net sales in the Pharmaceutical segment and a continued
trend in the Company's business towards higher margin products, primarily in the
Cosmetic segment. Cost of goods sold for the three months ended March 31, 2006
included approximately $1.0 million, or 1.1% of net sales related to unabsorbed
overhead costs in connection with the closure of the Little Falls manufacturing
facility which were recorded according to the provisions of SFAS No. 151.

Selling and administrative expenses for the three months ended March 31, 2007
were $45.8 million, or 44.0% of net sales compared to $41.4 million or 44.5% of
net sales for the three months ended March 31, 2006.

The Company recorded a gain on pension curtailment of $5.4 million during the
three months ended March 31, 2007 in connection with the amendment of the
Employees' Pension Plan.

Severance expenses for the three months ended March 31, 2007 primarily represent
charges recorded in connection with the ceasing of manufacturing activities at
the Canajoharie Plant.

Net interest expense for the three months ended March 31, 2007 and 2006 of $9.4
million and $8.8 million, respectively, was primarily attributable to interest
incurred on the Floating Rate Notes (as defined herein), the Subordinated Notes
(as defined herein) and the ABL Credit Facility. The increase in net interest
expense was primarily attributable to an increase in interest rates.

Income tax expense for the three months ended March 31, 2007 of $1.1 million was
based on the Company's expected effective tax rate of 41.9% for the year ending
December 31, 2007. The increase in the effective income tax rate is primarily
due to a greater impact of projected permanent items on foreign book income as
compared to the previous year.

The income tax benefit for the three months ended March 31, 2006 of $2.1 million
was based on the Company's effective tax rate of 36.5% for year ended December
31, 2006.

                                      -28-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs arise primarily from debt service on its
substantial indebtedness and from funding of capital expenditures, ongoing
operating costs and working capital.

In connection with the Merger in January 2005, substantially all of the
Company's then outstanding indebtedness was redeemed, repurchased or otherwise
repaid and replaced. The Company issued $175 million of senior subordinated
notes due 2012 (the "Subordinated Notes"), and closed on the prior senior credit
facilities which provided for aggregate maximum borrowings of $250.0 million,
consisting of a prior term loan facility of $200.0 million and a prior revolving
credit facility of $50.0 million. On October 28, 2005, the Company refinanced
and terminated the prior senior credit facilities through the issuance of $185.0
million of senior secured floating rate notes due November 1, 2011 (the
"Floating Rate Notes"), and a $75.0 million credit agreement. This agreement was
used as interim financing until December 29, 2005, when it was replaced with an
$85.0 million asset-based revolving credit facility, as subsequently amended
(the "ABL Credit Facility").

Principal and interest payments under the Floating Rate Notes, the ABL Credit
Facility and the Subordinated Notes will represent significant liquidity
requirements for the Company. The Company expects that cash flow from operating
activities and expected available borrowings under the ABL Credit Facility will
provide sufficient working capital to operate the Company's business, to fund
expected capital expenditures and to meet foreseeable liquidity requirements,
including debt service on the Company's outstanding debt. The Company's ability
to borrow under the ABL Credit Facility is subject to a borrowing base
consisting of a percentage of eligible accounts receivable and eligible
inventory. No assurance can be given, however, that the Company's business will,
in fact, generate sufficient cash flows or that future borrowings will, in fact,
be available in an amount sufficient to enable the Company to service its debt
or to fund its other liquidity needs.


THE SUBORDINATED NOTES AND FLOATING RATE NOTES

The Subordinated Notes bear interest at 8% and 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.

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 Subordinated Notes
Indenture.


                                      -29-
<PAGE>

The Floating Rate Notes bear interest at a rate per annum equal to three-month
LIBOR plus 5.0%. The Floating Rate Notes are guaranteed by certain of the
existing and future domestic subsidiaries of the Company. The Floating Rate
Notes and guarantees are secured by a first priority security interest in
substantially all of the Company's and guarantors' assets, other than inventory,
receivables, equity interest in the Company's subsidiaries and other specified
excluded assets and by a second priority security interest in substantially all
the Company's and guarantors' inventory, receivables and other specified liquid
assets. The Floating Rate Notes and guarantees rank equally with all existing
and future senior indebtedness and rank senior to all existing and future
subordinated indebtedness, including the Subordinated Notes and related
guarantees. Interest on the Floating Rate Notes is payable quarterly on February
1, May 1, August 1 and November 1.

The Floating Rate Notes contain covenants that, among other things, limit the
issuance of additional indebtedness, the incurrence of liens, the payment of
dividends or other distributions, 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 Floating Rate Notes
Indenture.

On June 20, 2007, the Company received notices of default from the Trustees.
Under Section 4.03(a) of the Indentures, the Company was required to file its
Form 10-Q within the time period specified by the SEC's rules and regulations.
The Trustee for each Indenture provided the notice of default to notify the
Company that it was in violation of Section 4.03(a) of the respective Indenture
as a result of the delay in the filing of the Form 10-Q, as described above
under "Overview" and in Note 3 to the Consolidated Financial Statements, and to
demand that the Company remedy the default.

Each Indenture provides that the Company has 30 days from receipt of a notice of
default to cure such default before an event of default occurs under the
Indenture. If an event of default occurs, the respective Trustee or the Holders
of 25% in aggregate principal amount of the Subordinated Notes or the Floating
Rate Notes, as the case may be, may declare the applicable Notes to be due and
payable immediately. The Company has cured the default with respect to each
Indenture as of July 6, 2007 by filing this report.

THE ABL CREDIT FACILITY

The ABL Credit Facility, which was subsequently amended on February 23, 2006 and
November 29, 2006, matures on December 29, 2010 and provides for aggregate
maximum borrowings of $85.0 million. The ABL Credit Facility is guaranteed by
DLI Holding II Corp. and by certain of the Company's existing and future
domestic subsidiaries. The ABL Credit Facility 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. The ABL Credit Facility is also secured on a first
priority basis by the capital stock of the Company's domestic subsidiaries.
Also, the guarantee by DLI Holding II Corp., is secured by a pledge of all of
its assets. The Company and the subsidiary guarantors, the credit facility
collateral agent and the Trustee for the Floating Rate Notes and the note
collateral agent entered into an Intercreditor Agreement.


                                      -30-
<PAGE>


Borrowings under the ABL Credit Facility are determined by a formula which
provides eligibility of up to 85% of the net book value of domestic accounts
receivable and a range of 35% to 65% of domestic inventory. Borrowings under the
ABL Credit Facility bear interest at the Company's option at either: (i) an
alternate base rate which is equal to the higher of 0.50% per year above the
federal funds effective rate and the base rate announced by the ABL Credit
Facility's administrative agent as its prime rate plus an applicable margin
ranging from 0.25% to 0.75% (0.25% at March 31, 2007) based on the Company's
borrowing base availability, or (ii) an Adjusted LIBOR rate plus an applicable
margin ranging from 1.25% to 1.75% (1.25% at March 31, 2007) based on the
Company's borrowing base availability. The terms of the ABL Credit Facility
include a commitment fee of .375% based on unused commitments of the lenders,
letter of credit fees on the aggregate face amount of outstanding letters of
credit and underwriting and administrative fees.

The ABL Credit Facility includes covenants, that among other things, limit or
restrict the Company's and its subsidiaries abilities to dispose of assets,
incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness, make dividends, create liens, make investments, make acquisitions,
modify the terms of the documents governing the indebtedness, engage in mergers
or make capital expenditures or engage in certain transactions with affiliates.
The ABL Credit Facility also requires the Company to comply with a minimum
coverage ratio of Consolidated EBITDA to fixed charges whenever excess borrowing
availability is less than $10.0 million on any day. As of March 31, 2007, the
Company had $18.0 million of senior debt and $1.0 million of letters of credit
outstanding under the ABL Credit Facility, $66.0 million of unutilized
commitments and $60.3 million of availability thereunder. As of July 2, 2007,
the Company had $20.0 million of senior debt and $1.0 million of letters of
credit outstanding under the ABL Credit Facility, $64.0 million of unutilized
commitments and $60.6 million of availability thereunder.

The ABL Credit Facility requires the Company to enter into interest rate
protection agreements to provide interest rate protection for a minimum of 45%
of the Company's consolidated funded indebtedness for two years. Effective
February 1, 2006, the Company entered into a cap/floor collar agreement (the
"Collar") with JPMorgan Chase Bank, N.A. to provide the required interest rate
protection and to manage its exposure to changes in LIBOR. The Collar is for a
notional amount of $100.0 million expiring on February 1, 2009 and has a cap
rate of 5.5% and a floor rate of 4.29%. The Collar has been designated as a cash
flow hedge of the variability of the cash flows due to changes in LIBOR and has
been deemed to be highly effective. Accordingly, the Company records the fair
value of the Collar as an asset or liability on its consolidated balance sheet,
and any unrealized gain or loss is included in accumulated other comprehensive
income. As of March 31, 2007, the Company recorded a liability of $132 in the
accompanying consolidated balance sheet and recorded an after-tax net loss of
$83 and an after-tax net gain of $169 in accumulated other comprehensive income
during the three months ended March 31, 2007 and 2006, respectively. No hedge
ineffectiveness was recorded during the three months ended March 31, 2007 and
2006.


FINANCIAL COVENANTS

Borrowings under the ABL Credit Facility are subject to certain conditions and
limitations described above. The indentures governing the Subordinated Notes and
the Floating Rate Notes contain significant financial and operating covenants,
including prohibitions on the Company's ability to incur certain additional
indebtedness or to pay dividends. The ABL Credit Facility contains borrowing
conditions and customary events of default, including nonpayment of interest,
violation of covenants, inaccuracy of representations and warranties,
cross-defaults to other indebtedness, bankruptcy and other insolvency events.


                                      -31-
<PAGE>


On March 31, 2007, the Company entered into a Waiver and Consent to the ABL
Credit Facility. Among other things, the Waiver and Consent (i) waived certain
Defaults or Events of Default relating to any potential restatement or revision
of the Company's consolidated financial statements delivered prior to the date
of the Waiver and Consent, and (ii) extended the date on which audited financial
statements with respect to the fiscal year ended December 31, 2006, and certain
other documents under the ABL Credit Facility, were required to be delivered to
April 30, 2007 from March 31, 2007. The Company delivered its audited financial
statements for the fiscal year ended December 31, 2006 and all other required
documents under the ABL Credit Facility to its lenders on April 30, 2007.

On May 15, 2007, the Company entered into a Second Waiver and Consent to the ABL
Credit Facility. Among other things, the Second Waiver and Consent (i) waived
certain Defaults or Events of Default relating to any potential restatement or
revision of the Company's consolidated financial statements delivered prior to
the date of the Second Waiver and Consent, and (ii) extended the date on which
unaudited financial statements for the three months ended March 31, 2007, and
certain other documents under the ABL Credit Facility, were required to be
delivered to June 15, 2007 from May 15, 2007.

On June 15, 2007, the Company entered into a Third Waiver and Consent to the ABL
Credit Facility. Among other things, the Third Waiver and Consent (i) waived
certain Defaults or Events of Default relating to any potential restatement or
revision of the Company's consolidated financial statements delivered prior to
the date of the Third Waiver and Consent, and (ii) extended the date on which
unaudited financial statements for the three months ended March 31, 2007, and
certain other documents under the ABL Credit Facility, were required to be
delivered to July 10, 2007 from June 15, 2007.

The ABL Credit Facility has a minimum fixed charge coverage ratio financial
covenant that is effective if the minimum excess availability under the ABL
Credit Facility is less than specified levels. Under the terms of the ABL Credit
Facility, the minimum fixed charge coverage ratio test would not have applied as
of March 31, 2007 as borrowing availability under the ABL Credit Facility would
have exceeded the specified threshold. The minimum fixed charge coverage ratio
test requires the Company to comply with a minimum coverage ratio of
consolidated EBITDA to fixed charges of at least 1:1 whenever excess
availability is less than $10.0 million (which amount will be increased in
proportion to any increase in commitments under the ABL Credit Facility).

Credit Agreement EBITDA as presented herein is a financial measure that is used
in the credit agreement for the Company's ABL 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 or as a measure of liquidity. Credit Agreement EBITDA differs from
the term "EBITDA" as it is commonly used. Credit Agreement EBITDA, as that term
is defined in the ABL Credit Facility and used as part of the calculation of the
term "Consolidated Coverage Ratio" which is used for a number of purposes,
including the Company's ability to incur additional indebtedness, consists 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 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.

                                      -32-
<PAGE>


The calculation of Credit Agreement EBITDA for the periods indicated is set
forth below. (in 000's)

<TABLE>
<CAPTION>

                                               Qtr 2       Qtr 3      Qtr 4        Qtr 1
                                                2006        2006       2006        2007       TOTAL
                                             --------    --------    --------    --------    --------
                                              Restated    Restated

<S>                                          <C>         <C>         <C>         <C>         <C>
Net earnings (loss)                          $ (1,790)   $    225    $(13,914)   $  1,479    $(14,000)
Income tax expense (benefit)                   (1,030)        129      (8,013)      1,067      (7,847)
Interest expense, net                           9,431       9,385       9,473       9,439      37,728
Depreciation and amortization                   6,185       6,689       7,307       6,927      27,108
Losses related to inventory impairment (1)       --          --         5,000        --         5,000
Little Falls closure costs (2)                  1,804       1,830        --          --         3,634
Synergetics fees and expenses                     941         708         929        --         2,578
Non-cash stock compensation charges               222         161         164         168         715
Other (3)                                         305        (250)        983      (4,279)     (3,241)
                                             --------    --------    --------    --------    --------
Credit Agreement EBITDA (4)                  $ 16,068    $ 18,877    $  1,929    $ 14,801    $ 51,675
                                             ========    ========    ========    ========    ========
<FN>


     (1) The Company recorded an incremental $25,054 provision for excess and
     slow moving inventory in the fourth quarter of 2006. The credit agreement
     limits the add back of losses related to disposition of excess, surplus or
     obsolete inventory to $5,000 per fiscal year and $15,000 in the aggregate,
     commencing with the fourth quarter of 2005.

     (2) Represents unabsorbed overhead costs of $3,349 charged to cost of goods
     sold, in accordance with SFAS No. 151, and $285 of implementation costs in
     connection with the closure of the Little Falls manufacturing facility.

     (3) Other represents extraordinary, unusual or non-recurring items, and
     other permitted add backs or adjustments under the credit agreement,
     including a benefit of $5,420 recorded during the first quarter of 2007
     relating to the curtailment of the Employees' Pension Plan.

     (4) Credit Agreement EBITDA for the fourth quarter of 2006 and the latest
     twelve months ended March 31, 2007 would have been $21,983 and $71,729,
     respectively, if adjusted for the additional $20,054 in the provision for
     excess and slow moving inventory that can not be added back pursuant to the
     credit agreement.

     (5) Credit Agreement EBITDA (restated) for the first quarter of 2006 was
     $11,578.
</FN>
</TABLE>

OPERATING ACTIVITIES

Net cash used in operating activities for the three months ended March 31, 2007
of $5.5 million was principally the result of $9.0 million in cash generated
(net earnings of $1.5 million plus depreciation and amortization of $4.2
million, amortization of display fixtures of $2.7 million, the provision for
excess and slow moving inventory of $2.6 million and deferred income taxes of
$3.4 million, less the pension curtailment gain of $5.4 million) and a decrease
in accounts receivable of $2.5 million, offset by an increase in inventories of
$9.5 million, an increase in other assets of $2.7 million and a decrease in
accounts payable and accrued liabilities of $4.4 million. Accounts receivable
decreased due to the timing of shipments and receipt of payment from shipments
which occurred during the fourth quarter of 2006. Inventories increased due to
the purchase of materials to support projected 2007 sales levels. Other assets
increased primarily due to the purchase and shipment of display fixtures to
customers. Accounts payable and accrued liabilities decreased due to the timing
of payments and purchases of material.

                                      -33-
<PAGE>


Net cash used in operating activities for the three months ended March 31, 2006
of $13.1 million was principally the result of $0.2 million in cash generated
(pre-tax loss of $5.8 million plus depreciation and amortization of $3.7 million
and amortization of display fixtures of $2.3 million), offset by increases in
accounts receivable of $6.5 million, other assets of $3.7 million and a decrease
in accounts payable of $3.2 million. Other assets increased due to the purchase
and shipment of display fixtures to customers. Accounts payable decreased due to
the timing of payments related to material purchases.


INVESTING ACTIVITIES

Net cash provided by investing activities of $0.8 million for the three months
ended March 31, 2007 was primarily related to net proceeds of $2.8 million from
the sale of the property in Little Falls, New York, offset by $2.0 million of
capital spending for tooling, plates and dies, and manufacturing machinery and
equipment. The Company currently expects that total expenditures for capital and
display fixtures for 2007 will be approximately $22.0 million.

Net cash used in investing activities of $1.8 million for the three months ended
March 31, 2006 was primarily related to capital spending for tooling, plates and
dies, and manufacturing machinery and equipment.


FINANCING ACTIVITIES

Net cash provided by financing activities for the three months ended March 31,
2007 of $5.9 million was primarily due to borrowings under the Company's ABL
Credit Facility of $8.0 million to support seasonal working capital
requirements and a $2.0 million distribution to DLI Holding Corp. used
for the repurchase of stock. Cash paid for interest during the three months
ended March 31, 2007 was $12.1 million. The Company anticipates that its debt
service requirements in 2007 will be approximately $34.6 million.

Net cash provided by financing activities for the three months ended March 31,
2006 of $13.6 million was primarily due to borrowings under the Company's ABL
Credit Facility.

The Company does not use any off-balance sheet financing arrangements. The
Company anticipates that it may, from time to time, purchase its debt securities
through the open market.

                                      -34-
<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's most critical accounting policies
relate to business acquisitions, revenue recognition, promotional allowance and
co-operative advertising, accounts receivable, inventories, property, plant and
equipment and other long-lived assets, pension benefits and income taxes.
Further information regarding these policies appears within "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's 2006 Annual Report on Form 10-K. Since December 31,
2006, there have been no significant changes to the Company's critical
accounting policies or to the related assumptions and estimates involved in
applying these policies, except as described in the following paragraph.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB No. 109" ("FIN No. 48"). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN No. 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company adopted the provisions of FIN No. 48 effective January
1, 2007. As a result of the adoption of FIN No. 48, the Company recorded a $1.3
million increase in the net liability for unrecognized tax benefits, which as
required, was accounted for as an increase to the January 1, 2007 accumulated
deficit.


NEW ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. The provisions of SFAS No. 159 are effective as of
the beginning of the first fiscal year that begins after November 15, 2007. The
Company is currently evaluating the impact, if any, that the adoption of SFAS
No. 159 will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact, if any, that the adoption
of SFAS No. 157 will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS No. 158"). SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position, measure a plan's
assets and its obligations as of the end of the employer's fiscal year-end and
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS No. 158 is effective for financial statements
of employers without publicly traded equity securities as of the year of the
fiscal year ending after June 15, 2007. The Company is currently evaluating the
impact, if any, that SFAS No. 158 will have on its consolidated financial
statements.


                                      -35-
<PAGE>

FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, (the "Exchange Act"). All statements other than statements of
historical facts included in this Quarterly Report on Form 10-Q, including,
without limitation, statements regarding the Company's liquidity, future
financial results, economic conditions, trends, certain risks and uncertainties,
expected efficiency improvements, and expected future cost savings are
forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "seek," "should," "look forward
to," "indications," "plan," "momentum," "believe" or "continue" or the negative
thereof or variations thereon or similar terminology. Many factors could affect
our actual financial results and could cause actual results to differ materially
from those expressed in the forward-looking statements. Important factors that
could cause actual results to differ materially from the Company's expectations,
or "cautionary statements," include, without limitation:

     o    our substantial amount of debt;

     o    delays in introducing new products or failure of consumers to accept
          new products;

     o    actions by competitors which may result in mergers, technology
          improvement or new product introductions;

     o    the Company's ability to realize cost savings and operational
          improvements;

     o    the Company's estimates of required inventory reserves if future
          economic conditions, the timing of new product introductions, customer
          inventory levels, retailer consolidations, fashion-oriented color
          cosmetic trends or competitive conditions differ from expectations;

     o    the Company's dependence on certain national chain drug stores, food
          stores and mass merchandiser relationships due to the concentration of
          sales generated by such chains;

     o    changes in fashion-oriented color cosmetic trends;

     o    the effect on sales of lower retailer inventory targets;

     o    the effect on sales of political and/or economic conditions;

     o    the Company's estimates of costs and benefits, cash flow from
          operations and capital expenditures;

     o    interest rates affecting the Company;

     o    regulatory requirements and government regulatory action;

     o    failure to maintain satisfactory compliance with good manufacturing
          practice requirements;

     o    changes in product mix to products which are less profitable;

     o    shipment delays;

     o    depletion of inventory and increased production costs resulting from
          disruptions of operations at any of its manufacturing or distribution
          facilities;

     o    foreign currency fluctuations affecting the Company's results of
          operations and the value of its foreign assets and liabilities;


                                      -36-
<PAGE>

     o    the relative prices at which the Company sells its products and its
          competitors sell their products in the same market;

     o    the Company's operating and manufacturing costs outside of the United
          States;

     o    changes in the laws, regulations and policies, including changes in
          accounting standards, that affect, or will affect, the Company in the
          United States and/or abroad; and/or

     o    trends in the general economy.


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 update or
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.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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

INTEREST RATE RISK

The Company's borrowings at March 31, 2007 under the Floating Rate Notes and the
ABL Credit Facility expose earnings to changes in short-term interest rates.
Interest rates on the underlying obligations are either variable or fixed for
such a short period of time as to effectively become variable. Effective
February 1, 2006, the Company entered into a Collar with JPMorgan Chase Bank,
N.A. for a notional amount of $100.0 million to hedge its exposure to changes in
interest rates on a portion of the Floating Rate Notes.

FOREIGN EXCHANGE RISK

The Company is subject to risk from changes in the foreign exchange rate for the
Company's 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 the Company and its foreign subsidiaries are recorded by
the foreign subsidiaries in their functional currency.


                                      -37-
<PAGE>

Item 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified by the SEC's rules and forms, and that such information
is accumulated and communicated to its management team, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. As of March 31, 2007, the
Company's management, under the supervision and with the participation of its
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined in Exchange Act
Rule 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of that date, the Company's
disclosure controls and procedures were not effective at a reasonable assurance
level due to the material weaknesses in the Company's internal control over
financial reporting described below. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results in there
being a more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected.

In connection with the preparation of its annual financial statements for the
year ended December 31, 2006 and the related audit by its independent registered
public accounting firm, KPMG LLP, the Company identified the following material
weaknesses in its internal control over financial reporting as of December 31,
2006 which continued as of March 31, 2007.

(1) The Company did not maintain sufficient personnel with an appropriate level
of technical accounting knowledge, experience and training in the application of
generally accepted accounting principles commensurate with the Company's
financial accounting and reporting requirements. This deficiency resulted in a
material error in the accounting for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes". In addition, the Company did not effectively
perform and document procedures to annually test goodwill and indefinite long
lived assets for impairment in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets".

(2) The Company did not maintain effective policies and procedures relating to
the computation of the sales return reserve. Specifically, the Company's
policies and procedures did not provide for sufficient review and validation of
the underlying assumptions and methodologies utilized in determining the
adequacy of the reserve.

(3) The Company had inadequate review controls over the accounting for and
reporting of non-routine transactions and complex accounting matters. This
deficiency resulted in the recording of an audit adjustment to the 2006
consolidated financial statements in connection with the computation of the
fourth quarter incremental inventory reserve.

These deficiencies caused and have the potential to cause a material
misstatement and/or inadequate disclosures in the Company's consolidated
financial statements.

The material weaknesses identified in (1) and (2) above resulted in a
restatement of the Company's prior consolidated financial statements as
previously disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 2006 and caused a delay in the filing of the Company's Form
10-Q.

The Company is currently in the process of developing and implementing
remediation plans to address its material weaknesses. Specific remedial actions
that have or are being taken for each of the material weaknesses described above
are as follows:


                                      -38-
<PAGE>

(1)  Technical accounting knowledge, experience and training in the application
     of generally accepted accounting principles, including:

o    Engaged outside tax experts, under the supervision of the Chief Financial
     Officer and Treasurer, to assist with the preparation of the tax provision
     in accordance with SFAS No. 109 and to supplement the Company's overall
     level of tax expertise.
o    Implementing new policies and procedures to ensure that the tax provision
     is properly prepared and reviewed on a timely basis.
o    Assessing the technical accounting capabilities of its personnel to ensure
     the right complement of knowledge, skills and training.

(2)  Computation of the sales return reserve, including:

o    Created an enhanced database that more closely measures sales returns to
     the periods of original sale.
o    Implemented new policies and procedures requiring a detailed and
     comprehensive review of the underlying information supporting the amounts
     and estimates used to compute the reserve.
o    Enhanced communication and collaboration between the accounting department
     and the sales department.
o    Hired a financial analyst within the sales department to focus on customer
     liabilities relating to the cosmetic business segment.
o    Assigning monitoring and control activities to the Treasurer and upgraded
     the accounting function through the hiring of additional accountants with
     relevant experience.

(3)  Review controls over the accounting for and reporting of non-routine
     transactions and complex accounting matters, including:

o    Hired additional technical accounting personnel to address complex
     accounting and financial reporting requirements.
o    Assessing the technical accounting capabilities of its personnel to ensure
     the right complement of knowledge, skills and training.
o    Implementing a process that ensures the timely review and approval of
     complex accounting transactions by qualified accounting personnel.
o    Requiring analyses of all significant non-routine transactions be reviewed
     by senior management.
o    Developing improved monitoring controls in the accounting department.

Other than the foregoing measures, which have not been not fully implemented to
remediate the material weaknesses described above, there has been no change in
the Company's internal control over financial reporting during the quarter ended
March 31, 2007, that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

The certifications of the Company's Chief Executive Officer and Chief Financial
Officer included as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q
include, in paragraph 4 of such certifications, information concerning the
Company's disclosure controls and procedures and internal control over financial
reporting. Such certifications should be read in conjunction with the
information contained in this Item 4 Controls and Procedures, for a more
complete understanding of the matters covered by such certifications.

The Company is continuing to perform the systems and process evaluation testing
of its internal control over financial reporting, as required by Section 404 of
the Sarbanes-Oxley Act, in order to allow management to report on the internal
control over financial reporting which will be required for the fiscal year
ending December 31, 2007.


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<PAGE>

PART II - OTHER INFORMATION

Item 1A. RISKS RELATED TO THE COMPANY

There have been no material changes from the risk factors previously disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31,
2006.


Item 6. EXHIBITS

     Exhibits

     Exhibit 10.1   Letter Agreement Regarding Employment with Shawn Smith,
                    dated as of March 13, 2007. Filed as Exhibit 10.45 to Del
                    Laboratories, Inc.'s Annual Report on Form 10-K filed April
                    30, 2007 (Commission File No. 001-05439) and incorporated
                    herein by reference.

     Exhibit 10.2   Equity Settlement Agreement, dated as of February 15, 2007,
                    among DLI Holding Corp., DLI Holding LLC, and William
                    McMenemy. Filed as Exhibit 10.01 to Del Laboratories, Inc.'s
                    Current Report on Form 8-K filed February 15, 2007
                    (Commission File No. 001-05439) and incorporated herein by
                    reference.

     Exhibit 10.3   Amendment No. 3 to Employees' Pension Plan.

     Exhibit 10.4   Amendment No. 4 to 401(k) Plan.

     Exhibit 31.1   Certification of Chief Executive Officer.

     Exhibit 31.2   Certification of Chief Financial Officer.

     Exhibit 32.1   Certification of Chief Executive Officer Pursuant to
                    18 U.S.C. Section 1350.

     Exhibit 32.2   Certification of Chief Financial Officer Pursuant to
                    18 U.S.C. Section 1350.




                                      -40-
<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:   JULY 6, 2007                  /S/ CHARLES J. HINKATY
              -----------------------               ----------------------
                                                    Charles J. Hinkaty
                                                    President and
                                                    Chief Executive Officer







              DATE:  JULY 6, 2007                   /S/ JOSEPH SINICROPI
              --------------------                  --------------------
                                                    Joseph Sinicropi
                                                    Executive Vice President and
                                                    Chief Financial Officer




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