UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(MARK ONE)

    X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
 --------
                         SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

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

                         COMMISSION FILE NO. 333-124360

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


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

                  726 RECKSON PLAZA, 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 (X) NO ( )

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 August
7, 2006 was 1,000.



<PAGE>





                     DEL LABORATORIES, INC. AND SUBSIDIARIES

                                      Index




Part I.         FINANCIAL INFORMATION
                                                                            PAGE
Item 1.    Financial Statements (All Successor periods with the
             exception of the one month ended January 31, 2005):

           Consolidated Balance Sheets as of June 30, 2006 and
              December 31, 2005                                                3

           Consolidated Statements of Operations for the three and
              six months ended June 30, 2006, three and five months ended
              June 30, 2005 and the one month ended January 31, 2005           4

           Consolidated Statements of Cash Flows for the six months ended
               June 30, 2006, five months ended June 30, 2005 and the one
               month ended January 31, 2005                                    5

           Notes to Consolidated Financial Statements                          6

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                32

Item 3.    Quantitative and Qualitative Disclosures About Market Risks        48

Item 4.    Controls and Procedures                                            48




Part II.   OTHER INFORMATION

Item 1A.   Risks Related to the Company                                       49

Item 6.    Exhibits                                                           49


SIGNATURES                                                                    50

<PAGE>

<TABLE>
<CAPTION>



                     DEL LABORATORIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       June 30, 2006 and December 31, 2005
                                 (In thousands)

                                                                     June 30,  December 31,
                                                                       2006        2005
                                                                    ---------    ---------
                                                                   (UNAUDITED)

       ASSETS

Current assets:
<S>                                                                <C>          <C>
       Cash and cash equivalents                                   $   3,132    $   2,602
       Accounts receivable, less allowance for doubtful accounts
         of $1,810 in 2006 and $1,674 in 2005                         80,635       72,311
       Inventories                                                   113,989      122,297
       Income taxes receivable                                           339          362
       Deferred income taxes                                          11,153       11,153
       Prepaid expenses and other current assets                       3,489        4,947
                                                                   ---------    ---------
                   Total current assets                              212,737      213,672
                                                                   ---------    ---------

Property, plant and equipment, at cost                                58,611       56,468
Less accumulated depreciation and amortization                       (11,962)      (6,975)
                                                                   ---------    ---------
        Net property, plant and equipment                             46,649       49,493

Intangibles arising from acquisitions, net                           256,662      259,287
Goodwill                                                             127,987      125,983
Other assets                                                          30,102       30,076
Deferred income taxes                                                 31,656       27,744
                                                                   ---------    ---------

                   Total assets                                    $ 705,793    $ 706,255
                                                                   =========    =========

       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Current portion of long-term debt                           $     193    $     185
       Accounts payable                                               29,442       35,138
       Accrued liabilities                                            39,686       35,474
                                                                   ---------    ---------

                   Total current liabilities                          69,321       70,797

Long-term debt, less current portion                                 387,259      382,241
Long-term pension liability, less current portion                     20,225       20,447
Deferred liability                                                     1,564        1,062
Deferred income taxes                                                107,094      106,857
                                                                   ---------    ---------
                   Total liabilities                                 585,463      581,404
                                                                   ---------    ---------

Shareholders' equity:
       Common stock $.01 par value, 1,000 shares authorized
         and issued                                                     --           --
       Additional paid-in capital                                    145,936      145,140
       Accumulated other comprehensive income                          1,490          453
       Retained deficit                                              (27,096)     (20,742)
                                                                   ---------    ---------

                   Total shareholders' equity                        120,330      124,851
                                                                   ---------    ---------


                   Total liabilities and shareholders' equity      $ 705,793    $ 706,255
                                                                   =========    =========


               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
                                 (In thousands)
                                   (UNAUDITED)

                                                                                                             PREDECESSOR
                                                                                                                PERIOD
                                                                                                           ---------------

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

                                April 1, 2006 -    April 1, 2005 -  January 1, 2006 -  February 1, 2005 - January 1, 2005 -
                                June 30, 2006      June 30, 2005      June 30, 2006      June 30, 2005    January 31, 2005
                                -------------      -------------      -------------      -------------    ----------------

<S>                               <C>                <C>                <C>                <C>                <C>
Net sales                         $ 112,109          $ 108,904          $ 204,234          $ 179,821          $  18,206

Cost of goods sold                   57,729             64,495            106,257            103,225              9,718
                                  ---------          ---------          ---------          ---------          ---------

Gross profit                         54,380             44,409             97,977             76,596              8,488

Selling and
  administrative expenses            47,944             44,258             89,893             73,163             11,475
Severance expenses (note 9)             328               --                  474               --                 --
Merger expenses (note 1)               --                  724               --                4,651             18,974
                                  ---------          ---------          ---------          ---------          ---------

Operating income (loss)               6,108               (573)             7,610             (1,218)           (21,961)

Other income (expense):
    Gain on sale of
      land and building                  41               --                   41               --                 --
    Interest expense, net            (9,431)            (6,882)           (18,274)           (11,732)              (264)
    Other income (expense), net         283                (93)               292                 77               (232)
                                  ---------          ---------          ---------          ---------          ---------

Loss before income taxes             (2,999)            (7,548)           (10,331)           (12,873)           (22,457)
Provision for (benefit
  from) income taxes                 (1,154)             2,566             (3,977)               463            (24,434)
                                  ---------          ---------          ---------          ---------          ---------
Net earnings (loss)               $  (1,845)         $ (10,114)         $  (6,354)         $ (13,336)         $   1,977
                                  =========          =========          =========          =========          =========









               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
                                 (In thousands)
                                   (UNAUDITED)


                                                                                                          PREDECESSOR
                                                                                                            PERIOD
                                                                                                      -----------------

                                                                January 1, 2006 -  February 1, 2005 - January 1, 2005 -
                                                                  June 30, 2006      June 30, 2005    January 31, 2005
                                                                  -------------      -------------    ----------------

Cash flows provided by (used in) operating activities:
<S>                                                               <C>                <C>                <C>
Net earnings (loss)                                               $  (6,354)         $ (13,336)         $   1,977
Adjustments to reconcile net earnings
  (loss) to net cash
  provided by (used in) operating activities:
Depreciation and amortization                                         7,607              5,357                748
Amortization of display fixtures                                      4,490              3,702                764
Amortization of inventory fair value adjustment                        --                5,579               --
Amortization of deferred financing fees and
      original issue discount                                         1,362                940                 20
Non-cash stock compensation                                             756               --                 --
Deferred income taxes                                                (3,977)              (837)           (13,030)
Provision for excess and slow moving inventory                        2,988              2,963                 17
Provision for doubtful accounts                                         120                100                 26
Tax benefit on stock options exercised                                 --                 --                   57
Gain on sale of assets                                                  (80)              --                 --
Other non-cash operating items                                         (280)               (98)               219

Changes in operating assets and liabilities:
    Accounts receivable                                              (8,245)           (17,797)             5,973
    Inventories                                                       5,895              1,379             (6,080)
    Prepaid expenses and other current assets                         1,462               (298)              (379)
    Other assets                                                     (4,700)            (5,049)            (1,686)
    Accounts payable                                                 (5,769)            (2,996)               405
    Accrued liabilities                                               4,057            (13,398)            21,720
    Deferred liability                                                  501               --                1,367
    Pension liability (net)                                             235                885               (330)
    Income taxes receivable / payable                                    80               (393)           (11,598)
    Deferred income taxes                                            (1,440)              --                 --
                                                                  ---------          ---------          ---------

          Net cash provided by (used in)
            operating activities                                     (1,292)           (33,297)               190
                                                                  ---------          ---------          ---------

Cash flows provided by (used in) investing activities:
    Net proceeds from sale of assets                                    562               --                 --
    Property, plant and equipment additions                          (3,351)            (2,929)              (797)
    Purchase of Del Laboratories, Inc.                                 --             (377,233)              --
                                                                  ---------          ---------          ---------

         Net cash used in investing activities                       (2,789)          (380,162)              (797)
                                                                  ---------          ---------          ---------

Cash flows provided by (used in) financing activities:
    Principal borrowings (payments) under
      revolving credit agreements, net                                5,000              5,000               (800)
    Principal payments under mortgages                                  (29)               (27)               (23)
    Principal repayments under term loan                               --               (1,000)              --
    Repayment of existing debt in connection with merger               --              (69,316)              --
    Issuance of senior subordinated notes                              --              173,845               --
    Issuance of term loan                                              --              200,000               --
    Payment of deferred financing and other merger related fees        --              (29,305)              --
    Payment of deferred financing fees                                 (452)              --                 --
    Contributed capital                                                  40            138,200               --
    Payment of capital lease obligations                                (63)               (59)              --
    Proceeds from the exercise of stock options                        --                 --                   12
    Acquisition of treasury stock                                      --                 --                  (57)
                                                                  ---------          ---------          ---------

          Net cash provided by (used in) financing activities         4,496            417,338               (868)
                                                                  ---------          ---------          ---------

Effect of exchange rate changes on cash                                 115                (27)               (21)
                                                                  ---------          ---------          ---------

Net increase (decrease) in cash and cash equivalents                    530              3,852             (1,496)

Cash and cash equivalents at beginning of period                      2,602              2,377              3,873
                                                                  ---------          ---------          ---------

Cash and cash equivalents at end of period                        $   3,132          $   6,229          $   2,377
                                                                  =========          =========          =========

Supplemental disclosures:
Cash paid for:
    Interest                                                      $  16,543          $   4,212          $     140
    Income taxes                                                  $   1,416          $   1,650          $     136

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


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



                                      -5-
<PAGE>



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



1. ORGANIZATION AND OTHER MATTERS

On January 27, 2005, DLI Acquisition Corp ("Sub"), a Delaware corporation and an
affiliate of Kelso & Company ("Kelso"), was merged (the "Merger") with and into
Del Laboratories, Inc., a Delaware corporation ("Del" ), pursuant to an
Agreement and Plan of Merger, dated July 1, 2004 (the "Merger Agreement"), by
and among Sub, Del and DLI Holding Corp., a Delaware corporation ("Holding").
Following the Merger, Del ceased to be a publicly traded company and is now a
wholly-owned subsidiary of DLI Holding II Corp., a Delaware corporation
("Holding II"), which, in turn, is owned by Holding and is an indirect,
wholly-owned subsidiary of DLI Holding LLC, a Delaware limited liability company
affiliated with Kelso ("DLI LLC"). In connection with the Merger, Del issued
1,000 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, Holding, Holding II and Del.

In connection with the Merger, certain investment partnerships affiliated with
Kelso invested approximately $136,140 in DLI LLC, as a result of which such
entities now own approximately 98.5% of the interests of DLI LLC. Certain
members of Del's senior management prior to and following the Merger
("Continuing Investors"), invested, in the aggregate, $60 in DLI LLC for
approximately 0.1% of the interests in DLI LLC. A third party investor invested
$2,000 in DLI LLC for the balance of the interests in DLI LLC. The foregoing
parties entered into a limited liability company agreement relating to their
ownership of interests in DLI LLC (the "DLI LLC Agreement").

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

In anticipation of the Merger, Sub issued in a private placement offering
$175,000 of 8% Senior Subordinated Notes due 2012. Such notes and all related
obligations were assumed by Del upon the consummation of the Merger. The notes
are guaranteed by certain of the existing domestic subsidiaries of Del. A
registration statement under the Securities Act of 1933, as amended, registering
the exchange offer for these notes became effective on May 13, 2005. On June 22,
2005, Del completed the exchange offer of the privately placed notes for SEC
registered notes.

Immediately prior to the Merger, Sub also entered into a credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, Bear Stearns Corporate
Lending Inc., as syndication agent, Deutsche Bank Securities Inc., as co-agent
and documentation agent, and the lenders party thereto from time to time,
providing for aggregate maximum borrowings of $250,000 consisting of a term loan
facility in an aggregate principal amount of $200,000 (all of which amount was
drawn in connection with the Merger,) and a revolving credit facility, providing
for up to $50,000 of revolving loans outstanding at any time. The obligations
under the credit agreement were assumed by Del upon the consummation of the
Merger. Del repaid all borrowings under the agreement and the agreement was
terminated in October 2005.


                                      -6-
<PAGE>




Pursuant to the Merger, all of the Company's outstanding common stock was
acquired for $35 a share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $416,686, comprised of $377,233 for the acquisition of
the outstanding shares and options exercised, $6,940 representing the fair value
of the options exchanged, $18,500 in severance payments, $957 of prepayment
penalties and $13,056 of transaction related costs. The acquisition, as
described above, has been accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations". The following table summarizes the estimated fair value
of the assets acquired and liabilities assumed at the date of acquisition.


          Current assets                                      $236,477
          Property, plant and equipment                         49,362
          Intangibles arising from acquisitions                264,100
          Goodwill                                             127,987
          Other assets                                          29,398
          Deferred income taxes                                 20,952
                                                              --------

             Total assets acquired                             728,276
                                                              --------

          Current liabilities                                   79,630
          Long-term pension liability                           22,143
          Deferred income taxes                                108,142
          Long-term debt                                       373,221
                                                              --------

             Total liabilities assumed                         583,136
                                                              --------

             Net assets acquired                              $145,140
                                                              ========


Current assets include inventories at a fair value of $124,959 which represents
an increase of $8,083 over the acquired book value.

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


           Work in process                          $1,538
           Finished goods                            6,545
                                                    ------
                                                    $8,083
                                                    ======


The fair value of inventory was developed in consultation with independent
valuation specialists. Work in process was based upon the estimated selling
price, less the cost to complete, cost of disposal and a normal selling profit.
Finished goods were based upon the estimated selling price less the cost of
disposal and a normal selling profit. The fair value of raw materials was based
upon the estimated replacement cost, which equaled the Company's historical
cost. As of the end of the third quarter of 2005, all of the inventory step-up
was expensed.

Property, plant and equipment at an original fair value of $49,862 represented
an increase of $3,122 over the acquired book value. Of the increase, $4,402 was
applicable to land and buildings and $1,280 represented a decrease to machinery
and equipment. During the first quarter of 2006, the Company recorded an
increase to goodwill and a decrease to land and buildings of $500 to adjust the
fair value of the assets based upon receipt of the final valuation of the
property.


                                      -7-
<PAGE>



Intangible assets of $264,100 include $159,100 related to trade names of the
Company's various product lines and $105,000 related to customer relationships.
In addition, a deferred tax liability of $99,096, which is due principally to
the recognition of the intangible asset of $264,100, was recorded with a
corresponding increase to goodwill. These fair values are based on assistance
received from a valuation specialist. The valuations are based on information
that was available as of the acquisition date and expectations and assumptions
that have been deemed reasonable by management. No assurance can be given,
however, that the underlying assumptions or events associated with such assets
will occur as projected. For these reasons, among others, the actual results may
vary from the projected results. The trade names are an indefinite-lived
intangible asset which is not subject to amortization, but does require
impairment evaluation during each annual reporting period to determine whether
events and circumstances continue to support an indefinite useful life. The
customer relationships are being amortized over a 20 year life.

During the first quarter of 2006, the Company recorded an increase to goodwill
and a decrease in its deferred tax assets in the amount of $1,505 to record a
pre-acquisition income tax adjustment.

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

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

Merger expenses for the Predecessor Period, January 1, 2005 to January 31, 2005,
consist of the payment of $18,768 upon the closing of the transaction on January
27, 2005 in connection with the separation agreement with the former Chairman
and $206 of legal and advisory fees and expenses incurred in connection with the
Merger.

Merger expenses for the Successor Period, February 1, 2005 to June 30, 2005 of
$4,651 are primarily related to $3,769 for change of control payments and $882
for other merger related expenses incurred in connection with the Merger.


                                      -8-
<PAGE>




Selected pro forma information for the six months ended June 30, 2005, as if the
acquisition occurred on January 1, 2005, is as follows:

                                                               Unaudited
                                                           -------------------
                                                                  Six
                                                              Months Ended
                                                             June 30, 2005
                                                           -------------------

                 Net sales                                      $198,027
                 Loss before income taxes                        (38,478)
                 Net loss                                        (13,264)


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




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

A summary of the Company's critical and significant accounting policies are
presented in its 2005 Annual Report on Form 10-K. Users of financial information
produced for interim periods are encouraged to refer to the footnotes contained
in the 2005 Annual Report on Form 10-K when reviewing interim financial results.

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

Certain reclassifications were made to prior year amounts in order to conform to
the current year presentation.

3. STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"). 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.





                                      -9-
<PAGE>



Prior to January 1, 2006, the Company followed the disclosure-only provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS No. 148"), an amendment of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") and accounted for stock-based
compensation for stock options issued to employees using the intrinsic value
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), and related interpretations.
Under APB No. 25, no compensation expense was recognized for employee share
option grants because the exercise price of the options granted equaled the
market price of the underlying shares on the date of grant. SFAS No. 123
required that the Company provide pro forma information regarding net earnings
as if compensation cost for the Company's stock-based awards had been determined
in accordance with the fair value method prescribed therein.

The following table illustrates the effect on net earnings if the Company had
applied the fair value recognition provisions of SFAS No. 123, to stock based
employee compensation. In determining such fair value, the Company used the
Black-Scholes option-pricing model to determine the pro forma effect with the
following weighted average assumptions in the calculations: dividend yield 0%;
expected life of 5 years; risk-free interest rate of 2.51%; and expected
volatility of 33.2%.

<TABLE>
<CAPTION>

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

                                            APRIL 1, 2005 -  FEBRUARY 1, 2005 -    JANUARY 1, 2005 -
                                            JUNE 30, 2005    JANUARY 31, 2005       JUNE 30, 2005

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



As a result of the acquisition and pursuant to the terms of the 1994 Stock Plan,
all outstanding unvested options of the Predecessor Company became fully-vested
and exercisable. As of the acquisition date, there were 2,152 options
outstanding, of which 1,727 were fully vested and 425 unvested. The Predecessor
Company acquired all of the outstanding options at $35 per share, less the
exercise price of the stock option. The Successor Company did not issue any
stock options during the Successor Period February 1, 2005 to June 30, 2005.
There were no options exercised during the period February 1, 2005 to June 30,
2005. The total intrinsic value of options exercised during January 2005 was
$145.

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



                                      -10-
<PAGE>



STOCK INCENTIVE PLAN

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

     (a)  Service Options generally become exercisable in three equal annual
          installments commencing on the first anniversary of the grant date.
          However, vesting of service options granted during the three months
          ended March 31, 2006 commenced on the later of January 27, 2005 or the
          employees hire date; and

     (b)  Exit Options (performance options) generally become exercisable only
          if Kelso is able to sell its indirect equity investment in DLI LLC at
          a price equal to at least two times its initial investment and achieve
          at least a 14% internal rate of return (the "Floor Value"), subject to
          certain exceptions. All Exit Options will become exercisable if Kelso
          is able to sell its indirect equity investment in DLI LLC at a price
          equal to at least four times its initial investment and will become
          partially exercisable on a ratable basis at a price in excess of the
          Floor Value.


Under the Incentive Plan, 234,508 options are reserved for issuance which
represents approximately 5.52% of the outstanding shares of Holding 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. The Company
granted 37,083 Service Options and 74,167 Exit Options on March 1, 2006 and
3,834 Service Options and 7,666 Exit Options on April 3, 2006.

The exercise price of each option under the Incentive Plan is determined by the
compensation committee, provided that the exercise price cannot be less than the
fair market value (as determined under the Incentive Plan) of the Holding common
stock on the date of grant. While the Incentive Plan provides that the
compensation committee may grant incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, it is anticipated that all options
granted under the Incentive Plan will be non-qualified stock options for federal
income tax purposes. The options will expire ten years from the grant date.
Options are not transferable other than by will or by the laws of descent and
distribution or, if permitted by the compensation committee.

Unless otherwise determined by the compensation committee at the time of grant,
upon a change in control (as defined in the Incentive Plan), each outstanding
Service Option (whether or not then exercisable), together with any outstanding
Exit Option that, prior to or in connection with such Change in Control, has
become exercisable, will be canceled in exchange for a payment in cash of an
amount equal to the excess of the price paid in the change in control
transaction over the exercise price of such option. All remaining Exit Options
that have not become exercisable at the time of the Change in Control will be
canceled. Notwithstanding the foregoing, if provided in the option agreement, no
compelled exercise, cancellation, acceleration of exercisability, vesting, cash
settlement or other payment will occur upon a Change in Control with respect to
any option if the compensation committee reasonably determines in good faith
prior to the Change in Control that such option will be honored or assumed, or
new rights substituted therefore by a participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change in Control. To be
approved by the compensation committee, any honored, assumed or new rights must
provide the participant with equivalent or better rights and entitlements than
the rights available under the current options; have substantially equivalent
economic value to the current options; and have terms and conditions which
provide that in the event the participant's employment is involuntarily
terminated following a Change in Control, any conditions on a participant's
rights or restrictions on transfer or exercisability (including vesting) will be
waived or lapse.



                                      -11-
<PAGE>








A summary of option activity under the Incentive Plan as of June 30, 2006, and
changes during the six months ended June 30, 2006 is presented below:

<TABLE>
<CAPTION>

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

<S>                               <C>            <C>            <C>                   <C>
Outstanding at January 1, 2006      --           $     --                              $   --
     Granted                      40,917             35.00                                 --
     Exercised                      --                 --                                  --
     Forfeited                      (250)            35.00                                 --
                                 -------

Outstanding at June 30, 2006      40,667         $   35.00          9.7 years          $   --
                                 =======         =========          =========          ========

Exercisable at June 30, 2006      11,472         $   35.00          9.7 years          $   --
                                 =======         =========          =========          ========




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

Outstanding at January 1, 2006      --           $    --                               $   --
      Granted                     81,833             35.00                                 --
     Exercised                      --                --                                   --
     Forfeited                      (500)            35.00                                 --
                                 -------
Outstanding at June 30, 2006      81,333         $   35.00          9.7 years          $   --
                                 =======         =========          =========          ========

Exercisable at June 30, 2006        --           $   --                                $   --
                                 =======        ==========                             ========
</TABLE>



(1) The intrinsic value is the amount by which the current market value of the
underlying stock exceeds the exercise price of the option.

The weighted-average grant-date fair value of Service Options and Exit Options
granted during the three months ended June 30, 2006 was $13.06 and $9.22,
respectively. The weighted-average grant-date fair value of Service Options and
Exit Options granted during the six months ended June 30, 2006 was $13.16 and
9.61, respectively.

The Company recorded compensation expense of $53 and $221 ($33 and $136 after
tax) relating to the Service Options for the three and six months ended June 30,
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 June 30,
2006, the total unrecognized compensation cost related to the non-vested Service
Options was $307 and the related weighted-average period over which this cost is
expected to be recognized is approximately 1.8 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 June 30, 2006:
dividend yield 0%; expected life of 3.8 years; risk-free interest rate 4.90%;
and expected volatility of 45%. The weighted average assumptions used in the
calculations for the six months ended June 30, 2006 were: dividend yield 0%;
expected life of 3.9 years; risk-free interest rate 4.73%; 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.



                                      -12-
<PAGE>


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 June 30, 2006:
dividend yield 0%; expected life of 3.8 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 4.90%; and
expected volatility of 45%. The weighted average assumptions used in the
calculations for the six months ended June 30, 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 4.73%; 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 the Company and distributions from the Company as set
forth in the DLI LLC Agreement. The Override Units are not convertible to 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.

Thirty three percent of the Override Units granted were Operating Units which
may be forfeited, on a pro-rata basis, if any executive ceases to be employed by
the Company during the three year period following the grant of such Operating
Units.

The remaining sixty seven percent of the Override Units granted were Value Units
which participate in distributions only upon certain change of control or
liquidation events and only if, upon the occurrence of such an event, Kelso
receives an internal rate of return, compounded annually, on its investment in
the Company of at least 14% and the Final Value, as defined in the DLI LLC
Agreement, is at least greater than two times the Initial Price, as defined in
the DLI LLC Agreement. All Value Units will participate in distributions if the
Final Value is at least four times the Initial Price, and the Value Units will
participate in distribution on a ratable basis in the event that the Final Value
is greater than two times but less than four times the Initial Price. Value
Units granted to an executive are subject to forfeiture if the executive ceases
to be employed by the Company prior to a change in control. Value Units not
eligible to participate in distributions are automatically forfeited.

A summary of the Override Units granted by the Company as of June 30, 2006 and
changes during the six months ended June 30, 2006 is presented below:



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

Operating Units subject to forfeiture at January 1, 2006     70,896    $   14.53
     Granted                                                 27,266        13.99
     Exempt from forfeiture                                 (34,994)       14.49
     Forfeited                                                 --        --
                                                            -------
Operating Units subject to forfeiture at June 30, 2006       63,168    $   14.30
                                                            =======    =========


                                      -13-
<PAGE>







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

Value Units subject to forfeiture at January 1, 2006        130,882    $   14.53
     Granted                                                 65,441        10.18
     Exempt from forfeiture                                    --        --
     Forfeited                                                 --        --
                                                            -------
Value Units subject to forfeiture at June 30, 2006          196,323    $   13.08
                                                            =======    =========


Total compensation expense recorded in connection with the Operating Units was
$359 and $535 ($221 and $329 after tax) for the three and six months ended June
30, 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 June 30,
2006, the total unrecognized compensation cost related to Operating Units
subject to forfeiture was $864 and the related weighted-average period over
which this cost is expected to be recognized is approximately 2.0 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.




4. INVENTORIES

Inventories are valued at the lower of cost (principally first-in / first-out)
or market value. The Company records reductions to the cost of inventories based
upon its forecasted plans to sell, historical scrap and disposal rates and
physical condition of the inventories. The Company has a reserve of $19,027 and
$17,411 at June 30, 2006 and December 31, 2005, respectively, to reflect the
estimated amounts for obsolescence and scrap. The components of inventories
(net) were as follows:


                                                     June 30,  December 31,
                                                      2006        2005
                                                    --------    --------

      Raw materials                                 $ 35,103    $ 42,979
      Work in process                                  4,901       4,529
      Finished goods                                  73,985      74,789
                                                    --------    --------

                                                    $113,989    $122,297
                                                    ========    ========


In accordance with Statement of Financial Accounting Standards No. 151,
"Inventory Costs", ("SFAS No. 151"), the Company charged $2,546 to cost of goods
sold during the six months ended June 30, 2006 relating to unabsorbed overhead
costs in connection with the closure of the Little Falls manufacturing facility
(Note 9).



                                      -14-
<PAGE>


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(R), 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:


                                                 JUNE 30, 2006
                                                 -------------
                                   GROSS
                                 CARRYING         ACCUMULATED          NET BOOK
                                  VALUE           AMORTIZATION           VALUE
                                  -----           ------------           -----

Trade names                      $159,100         $       --           $159,100
Customer relationships            105,000                7,438           97,562
                                 --------         ------------         --------

                                 $264,100         $      7,438         $256,662
                                 ========         ============         ========

                                                 DECEMBER 31, 2005
                                                 -----------------
                                  GROSS
                                CARRYING           ACCUMULATED          NET BOOK
                                  VALUE           AMORTIZATION           VALUE
                                  -----           ------------           -----

Trade names                      $159,100         $       --           $159,100
Customer relationships            105,000                4,813          100,187
                                 --------         ------------         --------

                                 $264,100         $      4,813         $259,287
                                 ========         ============         ========


Amortization expense was $1,313 for the three months ended June 30, 2006 and
2005, and amounted to $2,625, $2,187 and $44 for the six months ended June 30,
2006, for the 2005 Successor Period and for the 2005 Predecessor Period,
respectively. The estimated amortization expense for the years ending December
31, 2006, 2007, 2008, 2009 and 2010 is $5,250 in each of the five years.


6. INCOME TAXES

The Company recorded an income tax benefit and a corresponding increase in its
deferred tax assets during the six months ended June 30, 2006 of $3,977 based on
the Company's expected effective tax rate of 38.5% for the year ending December
31, 2006.

Income taxes for the Successor Period February 1, 2005 to June 30, 2005 of $463
was based on the Company's expected effective tax rate of (3.6)% for the period
February 1, 2005 to December 31, 2005. The expected effective tax rate of (3.6)%
was principally the result of taxable income of foreign subsidiaries, which is
taxed at higher rates than the U.S., offset by a taxable loss in the U.S.
primarily due to the amortization of the inventory step-up and other merger
expenses.

Income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24,434 was due to the recording, as an income tax receivable, of an
anticipated income tax refund of approximately $11,242 attributable to the
utilization of a net operating loss carry-back, the recording of deferred tax
assets of approximately $13,454 attributable to net operating loss
carry-forwards and the recording of approximately $262 of deferred tax expense
related to temporary differences. On October 27, 2005, the Company received a
cash tax refund of $11,771.

Deferred tax assets and liabilities are primarily due to amounts recorded in
connection with the Merger. 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 June 30, 2006 and December 31, 2005 as the Company
believes it is more likely than not that the deferred tax assets will be
realized.




                                      -15-
<PAGE>


7. LONG - TERM DEBT

Long - term debt consisted of the following:


                                                        June 30,   December 31,
                                                          2006        2005
                                                        --------   ------------

    8% senior subordinated notes, net of unamortized
       discount of $968 in 2006 and $1,034 in 2005      $174,032      $173,966
    Senior secured floating rate notes                   185,000       185,000
    Borrowings under revolving credit agreement           27,000        22,000
    Mortgages on land and buildings                        1,277         1,254
    Obligations under capital leases                         143           206
                                                        --------      --------
                                                         387,452       382,426
    Less current portion                                     193           185
                                                        --------      --------
                                                        $387,259      $382,241
                                                        ========      ========

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 (loss). As of
June 30, 2006, the Company recorded an asset of $615 in the accompanying
consolidated balance sheet and recorded after-tax net gains of $209 and $378 in
accumulated other comprehensive income (loss) during the three and six months
ended June 30, 2006, respectively. No hedge ineffectiveness was recorded during
the three and six months ended June 30, 2006.

On June 5, 2006, the Company issued a $500 irrevocable and unconditional letter
of credit for the benefit of the Company's insurance carrier as security for the
general liability, workers compensation and automobile liability policies. Such
letter of credit was subsequently increased to $750 on July 3, 2006.

On July 14, 2006, a registration statement filed pursuant to the Securities Act
of 1933, as amended, registering the exchange offer for the $185,000 senior
secured floating rate notes became effective and the Company commenced the
exchange offer of the privately placed notes for SEC registered notes.


8. EMPLOYEE PENSION PLANS

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



                                      -16-
<PAGE>



As a result of the Merger, the Company recorded a fair value adjustment to its
pension assets and liabilities of $10,548. The adjustment was the result of an
increase of $9,870 in liabilities and a reduction of plan assets of $678.


COMPONENTS OF NET PERIOD BENEFIT COST

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



                          APRIL 1, 2006 - JUNE 30, 2006
                          -----------------------------

                                             DEL NON-    DEL LACROSS
                                            UNION PLAN      PLAN           SERP
                                             -------       -------       -------
Service cost                                 $ 1,016       $  --         $     3
Interest cost                                    715            15           103
Expected return on plan assets                  (718)          (16)         --
Recognized net loss                             --            --              32
                                             -------       -------       -------


Net periodic cost                            $ 1,013       $    (1)      $   138
                                             =======       =======       =======


                          APRIL 1, 2005 - JUNE 30, 2005
                          -----------------------------

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

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


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



                          JANUARY 1, 2006 - JUNE 30, 2006
                          -------------------------------

                                             DEL NON-    DEL LACROSS
                                            UNION PLAN      PLAN           SERP
                                             -------       -------       -------
Service cost                                 $ 2,032       $  --         $     6
Interest cost                                  1,431            32           206
Expected return on plan assets                (1,436)          (32)         --
Recognized net loss                             --            --              64
                                             -------       -------       -------


Net periodic cost                            $ 2,027       $  --         $   276
                                             =======       =======       =======


                                      -17-
<PAGE>







                          FEBRUARY 1, 2005 - JUNE 30, 2005
                          --------------------------------

                                             DEL NON-    DEL LACROSS
                                            UNION PLAN      PLAN           SERP
                                             -------       -------       -------
Service cost                                 $ 1,528       $  --         $    13
Interest cost                                  1,082            30            80
Expected return on plan assets                (1,038)          (28)         --
Recognized net loss                                3          --            --
                                             -------       -------       -------

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



                               PREDECESSOR PERIOD
                       JANUARY 1, 2005 - JANUARY 31, 2005
                       ----------------------------------

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

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

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


                                      -18-
<PAGE>




9. RESTRUCTURING AND SEVERANCE

On August 15, 2005, Mr. William McMenemy resigned as President and Chief
Executive Officer effective August 19, 2005 but remained on the Board of
Directors of the Company. Also in August 2005, the Company announced a workforce
reduction program implemented in September 2005 to streamline the Company's
organization and reduce costs. As of December 31, 2005, 55 positions, including
long-term consultants, were eliminated. Pursuant to Mr. McMenemy's severance
agreement and the Company's formal severance policy, a charge of $2,003 for
severance costs and related benefits was recorded during the third and fourth
quarters of 2005, of which $1,290 was paid as of June 30, 2006. The balance will
be paid over 8 months. During the second quarter of 2006, additional severance
costs and related benefits of $319 were recorded, of which $195 was paid as of
June 30, 2006. The balance will be paid over 5 months.

On January 13, 2006, the Company announced that it plans to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
intends to transfer a majority of these manufacturing operations to its Rocky
Point, North Carolina manufacturing facility and to outsource the remainder. In
addition, the Company plans to close several of its short-term leased warehouse
facilities in upstate New York and convert the Little Falls facility to a
warehouse to store a portion of the Company's inventory. Pursuant to the
Company's formal severance policy, a charge of $1,243 for severance costs and
related benefits for approximately 299 employees was recorded in December 2005
in accordance with SFAS No. 112, "Employers' Accounting for Postemployment
Benefits". 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. During the first and second
quarters of 2006, charges of $102 and $96, respectively, were recorded for such
earned benefits, in addition to adjustments of $44 and $(87), respectively, to
the initial accrual. Also during the first and second quarters of 2006, the
Company recorded charges to cost of goods sold of $107 and $285, respectively,
related to moving costs for relocated inventory, break down, moving and start-up
costs associated with equipment transfers and other related charges. As of June
30, 2006, $47 of severance benefits has been paid and 31 employees have been
terminated. During the remainder of 2006, the Company estimates that it will
incur an additional $533 costs in connection with the relocation of inventory
and equipment and approximately $217 for additional severance and relocation
costs. Such additional costs will be charged to the Cosmetic segment. Cash
payments relating to severance costs and related benefits of approximately
$1,448 are expected to be made through the end of the second quarter of 2007. As
a result of the closing, it is anticipated that there will be a partial
curtailment of the pension plan, which is expected to reduce pension liabilities
by approximately $1,000 to $1,500, with a pre-tax benefit impacting the full
year 2006 results by approximately $300 to $600.

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



                Balance at December 31, 2005              $1,243
                            Provision                        198
                            Payments                         (47)
                            Adjustments                      (43)
                                                          ------
                Balance at June 30, 2006                  $1,351
                                                          ======


                                      -19-
<PAGE>




10.  COMPREHENSIVE INCOME (LOSS)

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


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

                                        APR. 1, 2006 - APR. 1, 2005 - JAN. 1, 2006 - FEB. 1, 2005 - JAN. 1, 2005 -
                                         JUNE 30,2006   JUNE 30,2005  JUNE 30, 2006  JUNE 30, 2005   JAN. 31, 2005
                                         ------------   ------------  -------------  -------------   -------------

<S>                                        <C>            <C>            <C>            <C>            <C>
Net earnings (loss)                        $ (1,845)      $(10,114)      $ (6,354)      $(13,336)      $  1,977
Other comprehensive income (loss)
   Foreign currency translation
     gain / (loss)                              731           (125)           659            137           (346)
   Change in fair value of interest rate
     Collar, net of taxes                       209           --              378           --             --
                                           --------       --------       --------       --------       --------
Total comprehensive income (loss)          $   (905)      $(10,239)      $ (5,317)      $(13,199)      $  1,631
                                           ========       ========       ========       ========       ========
</TABLE>


                                      -20-
<PAGE>




11. SEGMENT INFORMATION

The Company operates in two segments, Cosmetic and Pharmaceutical, that have
been organized by the products and services they offer. The Cosmetic segment's
principal products are nail care, nail color, color cosmetics, beauty
implements, bleaches and depilatories, personal care products and other related
cosmetic items. The Pharmaceutical segment's principal products are 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. Certain assets,
including property, plant and equipment and deferred tax assets, are not
allocated to the identifiable segments; depreciation of unallocated assets is
charged to the Cosmetic segment.

<TABLE>
<CAPTION>

                                          THREE MONTHS ENDED                      SIX MONTHS ENDED
                                   --------------------------------    ----------------------------------------------
                                                                                                          PREDECESSOR
                                                                                                            PERIOD
                                                                                                            ------

                                   APR. 1, 2006-      APR. 1, 2005-    JAN. 1, 2006-    FEB. 1, 2005 -   JAN. 1, 2005 -
                                   JUNE 30, 2006      JUNE 30, 2005    JUNE 30, 2006     JUNE 30, 2005   JAN. 31, 2005
                                   -------------      -------------    -------------     -------------   -------------

Net sales:
<S>                                    <C>              <C>              <C>              <C>              <C>
   Cosmetic                            $  89,423        $  86,930        $ 162,026        $ 142,317        $  14,756
   Pharmaceutical                         22,686           21,974           42,208           37,504            3,450
                                       ---------        ---------        ---------        ---------        ---------
   Consolidated                        $ 112,109        $ 108,904        $ 204,234        $ 179,821        $  18,206
                                       =========        =========        =========        =========        =========

Operating income (loss):
   Cosmetic                            $   2,158        $  (4,053)       $   1,802        $  (6,865)       $ (17,714)
   Pharmaceutical                          3,950            3,480            5,808            5,647           (4,247)
                                       ---------        ---------        ---------        ---------        ---------
      Consolidated                         6,108             (573)           7,610           (1,218)         (21,961)



Other income (expense):
   Gain on sale of building and land          41             --                 41             --               --
   Interest expense, net                  (9,431)          (6,882)        (18,274)        (11,732)           (264)
   Other income (expense), net               283              (93)            292              77            (232)
                                       ---------        ---------        ---------       ---------       ---------
 Loss before income taxes              $  (2,999)       $  (7,548)       $ (10,331)      $ (12,873)      $ (22,457)
                                       =========        =========        =========       =========       =========

Depreciation and amortization:
   Cosmetic                            $   3,163        $   2,461        $   6,028        $   4,140        $     707
   Pharmaceutical                            793              744            1,579            1,217               41
                                       ---------        ---------        ---------        ---------        ---------
   Consolidated                        $   3,956        $   3,205        $   7,607        $   5,357        $     748
                                       =========        =========        =========        =========        =========


Amortization of display fixtures:
   Cosmetic                            $   2,229        $   2,213        $   4,490        $   3,702        $     764
   Pharmaceutical                           --               --              --               --                --
                                       ---------        ---------        ---------        ---------        ---------
  Consolidated                         $   2,229        $   2,213        $   4,490        $   3,702        $     764
                                       =========        =========        =========        =========        =========
</TABLE>




Operating income for the three and six months June 30, 2006 includes severance
expense of $328 and $474, respectively, which was all charged to the Cosmetic
segment.



12. SALE OF PROPERTY

In June 2006, the Company sold land and a building located in Newark, New Jersey
to an unrelated third party for net proceeds of $493 and incurred additional
closing costs of $2. The land and building had a net book value at June 30, 2006
of $450, resulting in a gain on the sale of $41.


                                      -21-
<PAGE>

(12) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company's obligations related to its ABL Credit Facility, Notes and the
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"). Separate financial statements for the Subsidiary Guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to the investor. The accounting
policies of the parent company, the Subsidiary Guarantors and the Subsidiary
Non-Guarantors are the same as those described for the Company in the 2005
Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                           CONSOLIDATING BALANCE SHEET
                                 June 30, 2006


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

Current assets:
<S>                                                              <C>          <C>          <C>          <C>          <C>
         Cash and cash equivalents                               $   1,768    $    (124)   $   1,488    $    --      $   3,132
         Accounts receivable                                        59,987       14,906        5,742         --         80,635
         Inventories                                                88,196       10,524       15,269         --        113,989
         Income taxes receivable                                    19,612      (21,533)       2,260         --            339
         Deferred income taxes                                      10,967          186         --           --         11,153
         Prepaid expenses and other current assets                   2,945          291          253         --          3,489
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total current assets                           183,475        4,250       25,012         --        212,737

Property, plant and equipment, net                                  40,669        1,923        4,057         --         46,649
Intercompany                                                        68,046      (51,339)     (16,707)        --           --
Intangibles arising from acquisitions, net                         169,548       87,114         --           --        256,662
Goodwill                                                           127,987         --           --           --        127,987
Other assets                                                        28,766            1        1,335         --         30,102
Note receivable                                                      6,430         --           --         (6,430)        --
Deferred income taxes                                               66,647      (34,991)        --           --         31,656
                                                                 ---------    ---------    ---------    ---------    ---------
                   Total assets                                  $ 691,568    $   6,958    $  13,697    $  (6,430)   $ 705,793
                                                                 =========    =========    =========    =========    =========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                       $     133    $    --      $      60    $    --      $     193
         Accounts payable                                           23,525        3,079        2,838         --         29,442
         Accrued liabilities                                        33,039        4,192        2,455         --         39,686
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total current liabilities                       56,697        7,271        5,353         --         69,321

Long-term debt, less current portion                               386,043         --          1,216         --        387,259
Long-term pension liability, less current portion                   20,225         --           --           --         20,225
Deferred liability                                                   1,564         --           --           --          1,564
Deferred income taxes                                              106,207          872           15         --        107,094
Note payable                                                          --           --          6,430       (6,430)        --
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total liabilities                              570,736        8,143       13,014       (6,430)     585,463
                                                                 ---------    ---------    ---------    ---------    ---------

Shareholders' equity:
         Common stock $.01 par value, authorized
            1,000 shares; issued 1,000 shares                         --           --           --           --           --
         Additional paid-in capital                                145,931         --              5         --        145,936
         Accumulated other comprehensive income                        130         --          1,360         --          1,490
         Retained deficit                                          (25,229)      (1,185)        (682)        --        (27,096)
                                                                 ---------    ---------    ---------    ---------    ---------

                    Total shareholders' equity (deficit)           120,832       (1,185)         683         --        120,330
                                                                 ---------    ---------    ---------    ---------    ---------


                    Total liabilities and shareholders' equity   $ 691,568    $   6,958    $  13,697    $  (6,430)   $ 705,793
                                                                 =========    =========    =========    =========    =========
</TABLE>



                                      -22-
<PAGE>



<TABLE>
<CAPTION>



                    CONSOLIDATING BALANCE SHEET
                         December 31, 2005


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

Current assets:
<S>                                                              <C>          <C>          <C>          <C>          <C>
         Cash and cash equivalents                               $   1,862    $    (434)   $   1,174    $    --      $   2,602
         Accounts receivable, net                                   52,828       14,432        5,051         --         72,311
         Inventories                                                96,609       10,878       14,810         --        122,297
         Income taxes receivable                                    19,595      (20,514)       1,281         --            362
         Deferred income taxes                                      10,967          186         --           --         11,153
         Prepaid expenses and other current assets                   4,195          547          205         --          4,947
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total current assets                           186,056        5,095       22,521         --        213,672

Property, plant and equipment, net                                  43,214        2,214        4,065         --         49,493
Intercompany                                                        72,199      (56,263)     (15,936)        --           --
Intangibles arising from acquisitions, net                         170,978       88,309         --           --        259,287
Goodwill                                                           125,983         --           --           --        125,983
Other assets                                                        28,880         --          1,196         --         30,076
Note receivable                                                      6,430         --           --         (6,430)        --
Deferred income taxes                                               62,735      (34,991)        --           --         27,744
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total assets                                 $ 696,475    $   4,364    $  11,846    $  (6,430)   $ 706,255
                                                                 =========    =========    =========    =========    =========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                       $     129    $    --      $      56    $    --      $     185
         Accounts payable                                           29,870        3,324        1,944         --         35,138
         Accrued liabilities                                        30,146        3,607        1,721         --         35,474
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total current liabilities                       60,145        6,931        3,721         --         70,797

Long-term debt, less current portion                               381,044         --          1,197         --        382,241
Long-term pension liability, less current portion                   20,447         --           --           --         20,447
Deferred liability                                                   1,062         --           --           --          1,062
Deferred income taxes                                              105,971          872           14         --        106,857
Note payable                                                          --           --          6,430       (6,430)        --
                                                                 ---------    ---------    ---------    ---------    ---------
                    Total liabilities                              568,669        7,803       11,362       (6,430)     581,404
                                                                 ---------    ---------    ---------    ---------    ---------

Shareholders' equity:
         Common stock $.01 par value, authorized
            1,000 shares; issued 1,000 shares                         --           --           --           --           --
         Additional paid-in capital                                145,135         --              5         --        145,140
         Accumulated other comprehensive income (loss)                (248)        --            701         --            453
         Retained deficit                                          (17,081)      (3,439)        (222)        --        (20,742)
                                                                 ---------    ---------    ---------    ---------    ---------

                    Total shareholders' equity (deficit)           127,806       (3,439)         484         --        124,851
                                                                 ---------    ---------    ---------    ---------    ---------


                    Total liabilities and shareholders' equity   $ 696,475    $   4,364    $  11,846    $  (6,430)   $ 706,255
                                                                 =========    =========    =========    =========    =========
</TABLE>



                                      -23-
<PAGE>

<TABLE>
<CAPTION>


                      CONSOLIDATING STATEMENT OF OPERATIONS
                          April 1, 2006 - June 30, 2006


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

<S>                                         <C>             <C>            <C>                <C>         <C>
Net sales                                   $  81,243       $  21,296      $   9,570          $ --        $ 112,109

Cost of goods sold                             45,591           6,064          6,074            --           57,729
                                            ---------       ---------      ---------          ------      ---------

Gross profit                                   35,652          15,232          3,496            --           54,380

Selling and administrative expenses            32,775          10,444          4,725            --           47,944
Severance expenses                                328            --             --              --              328
                                            ---------       ---------      ---------          ------      ---------

     Operating income (loss)                    2,549           4,788         (1,229)           --            6,108

Other income (expense):
     Gain on sale of land and building             41            --             --              --               41
     Interest expense, net                     (9,363)           --              (68)           --           (9,431)
     Other income (expense), net                  (34)              9            308            --              283
                                            ---------       ---------      ---------          ------      ---------


Earnings (loss) before income taxes            (6,807)          4,797           (989)           --           (2,999)
Provision for (benefit from) income taxes      (2,844)          1,972           (282)           --           (1,154)
                                            ---------       ---------      ---------          ------      ---------
     Net earnings (loss)                    $  (3,963)      $   2,825      $    (707)         $ --        $  (1,845)
                                            =========       =========      =========          ======      =========
</TABLE>



                                      -24-
<PAGE>



<TABLE>
<CAPTION>

                      CONSOLIDATING STATEMENT OF OPERATIONS
                          April 1, 2005 - June 30, 2005


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

<S>                                         <C>             <C>             <C>                <C>         <C>
Net sales                                   $  78,979       $  20,852       $   9,073          $--         $ 108,904

Cost of goods sold                             52,041           7,449           5,005           --            64,495
                                            ---------       ---------       ---------      ---------       ---------

Gross profit                                   26,938          13,403           4,068           --            44,409

Selling and administrative expenses            25,607          14,181           4,470           --            44,258
Merger expenses                                   724            --              --             --               724
                                            ---------       ---------       ---------      ---------       ---------

     Operating income (loss)                      607            (778)           (402)          --              (573)

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


Loss before income taxes                       (6,210)           (778)           (560)          --            (7,548)
Provision for (benefit from) income taxes       2,826            (459)            199           --             2,566
                                            ---------       ---------       ---------      ---------       ---------

     Net loss                               $  (9,036)      $    (319)      $    (759)         $--         $ (10,114)
                                            =========       =========       =========      =========       =========
</TABLE>



                                      -25-
<PAGE>

<TABLE>
<CAPTION>

                      CONSOLIDATING STATEMENT OF OPERATIONS
                         January 1, 2006 - June 30, 2006


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

<S>                                         <C>             <C>            <C>             <C>         <C>
Net sales                                   $ 145,490       $  39,709      $  19,035       $ --        $ 204,234

Cost of goods sold                             83,767          11,997         10,493         --          106,257
                                            ---------       ---------      ---------       ------      ---------

Gross profit                                   61,723          27,712          8,542         --           97,977

Selling and administrative expenses            55,412          25,139          9,342         --           89,893
Severance expenses                                474            --             --           --              474
                                            ---------       ---------      ---------       ------      ---------

     Operating income (loss)                    5,837           2,573           (800)        --            7,610

Other income (expense):
     Gain on sale of land and building             41            --             --           --               41
     Interest expense, net                    (18,140)           --             (134)        --          (18,274)
     Other income (expense), net                   (6)              7            291         --              292
                                            ---------       ---------      ---------       ------      ---------


Earnings (loss) before income taxes           (12,268)          2,580           (643)        --          (10,331)
Provision for (benefit from) income taxes      (5,005)          1,211           (183)        --           (3,977)
                                            ---------       ---------      ---------       ------      ---------

     Net earnings (loss)                    $  (7,263)      $   1,369      $    (460)      $ --        $  (6,354)
                                            =========       =========      =========       ======      =========



</TABLE>



                                      -26-
<PAGE>

<TABLE>
<CAPTION>



                      CONSOLIDATING STATEMENT OF OPERATIONS
                        February 1, 2005 - June 30, 2005



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

<S>                                         <C>             <C>             <C>                <C>         <C>
Net sales                                   $ 128,212       $  35,602       $  16,007          $--         $ 179,821

Cost of goods sold                             82,739          11,917           8,569           --           103,225
                                            ---------       ---------       ---------      ---------       ---------

Gross profit                                   45,473          23,685           7,438           --            76,596

Selling and administrative expenses            42,655          23,029           7,479           --            73,163
Merger expenses                                 3,950             701            --             --             4,651
                                            ---------       ---------       ---------      ---------       ---------

     Operating loss                            (1,132)            (45)            (41)          --            (1,218)

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


Loss before income taxes                      (12,743)            (47)            (83)          --           (12,873)
Provision for (benefit from) income taxes         232             (13)            244           --               463
                                            ---------       ---------       ---------      ---------       ---------

     Net loss                               $ (12,975)      $     (34)      $    (327)         $--         $ (13,336)
                                            =========       =========       =========      =========       =========

</TABLE>



                                      -27-
<PAGE>



<TABLE>
<CAPTION>


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


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

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

Cost of goods sold                       7,890            952            876           --            9,718
                                      --------       --------       --------       --------       --------

Gross profit                             5,499          2,177            812           --            8,488

Selling and administrative expenses      7,140          3,270          1,065           --           11,475
Merger expenses                         15,483          3,491           --             --           18,974
                                      --------       --------       --------       --------       --------

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

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


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

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



                                      -28-
<PAGE>

<TABLE>
<CAPTION>



                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        January 1, 2006 - June 30, 2006

                                                                           Guarantor     Non-Guarantor
                                                               Issuer     Subsidiaries    Subsidiaries  Eliminations   Consolidated
                                                               ------     ------------    ------------  ------------   ------------
Cash flows provided by (used in)
  operating activities:
<S>                                                             <C>           <C>           <C>           <C>           <C>
Net earnings (loss)                                             $(7,263)      $ 1,369       $  (460)      $  --         $(6,354)
Adjustments to reconcile net earnings
  (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                     5,776         1,625           205             1         7,607
Amortization of display fixtures                                  4,200          --             290          --           4,490
Amortization of deferred financing
  fees and original issue discount                                1,362          --            --            --           1,362
Non-cash stock compensation                                         756          --            --            --             756
Deferred income taxes                                            (3,977)         --            --            --          (3,977)
Provision for excess and slow moving
  inventory                                                       1,010           800         1,178          --           2,988
Provision for doubtful accounts                                     120          --            --            --             120
Gain on sale of assets                                              (80)         --            --            --             (80)
Other non-cash operating items                                     --            --            (280)         --            (280)
Changes in operating assets and liabilities:
        Accounts receivable                                      (8,163)          411          (493)         --          (8,245)
        Inventories                                               7,404          (446)       (1,063)         --           5,895
        Prepaid expenses and other
            current assets                                        1,250           256           (44)         --           1,462
        Other assets                                             (4,293)           (1)         (406)         --          (4,700)
        Accounts payable                                         (6,345)         (245)          821          --          (5,769)
        Accrued liabilities                                       2,811           585           661          --           4,057
        Deferred liability                                          501          --            --            --             501
        Pension liability (net)                                     235          --            --            --             235
        Income taxes receivable / payable                           (17)        1,019         (922)          --              80
        Deferred income taxes                                    (1,440)         --            --            --          (1,440)
        Intercompany receivables / payables                       4,153        (4,924)          697            74          --
                                                                -------       -------       -------       -------       -------
          Net cash provided by (used in)
            operating activities                                 (2,000)          449           184            75        (1,292)
                                                                -------       -------       -------       -------       -------
Cash flows provided by (used in) investing activities:
        Net proceeds from sale of assets                            562          --            --            --             562
        Property, plant and equipment additions                  (3,181)         (139)          (31)         --          (3,351)
                                                                -------       -------       -------       -------       -------

          Net cash used in investing activities                  (2,619)         (139)          (31)         --          (2,789)
                                                                -------       -------       -------       -------       -------

Cash flows provided by (used in) financing activities:
        Principal borrowings under revolving
            credit agreement, net                                 5,000          --            --            --           5,000
        Principal payments under mortgages                         --            --             (29)         --             (29)
        Payment of deferred financing fees                         (452)         --            --            --            (452)
        Contributed capital                                          40          --            --            --              40
        Payment of capital lease obligations                        (63)         --            --            --             (63)
                                                                -------       -------       -------       -------       -------

          Net cash provided by (used in) financing activities     4,525          --             (29)         --           4,496
                                                                -------       -------       -------       -------       -------

Effect of exchange rate changes on cash                            --            --             190           (75)          115
                                                                -------       -------       -------       -------       -------

Net increase (decrease) in cash and cash equivalents                (94)          310           314          --             530

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

Cash and cash equivalents at end of period                      $ 1,768       $  (124)      $ 1,488       $  --         $ 3,132
                                                                =======       =======       =======       =======       =======
</TABLE>


                                      -29-
<PAGE>

<TABLE>
<CAPTION>

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



                                                                         Guarantor      Non-Guarantor
                                                                Issuer   Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                                                ------   ------------   ------------  ------------  ------------
Cash flows provided by (used in)
  operating activities:
<S>                                                            <C>          <C>          <C>          <C>          <C>
Net earnings (loss)                                           $ (12,975)   $     (34)   $    (330)   $       3    $ (13,336)
Adjustments to reconcile net earnings
  (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                      4,881          222          252            2        5,357
Amortization of display fixtures                                   3,443         --            259         --          3,702
Amortization of inventory fair value adjustment                    3,468        1,479          632         --          5,579
Amortization of deferred financing fees and
  original issue discount                                            940         --           --           --            940
Deferred income taxes                                             (1,189)         352         --           --           (837)
Provision for excess and slow moving inventory                     2,504          250          209         --          2,963
Provision for doubtful accounts                                       87           13         --           --            100
Other non-cash operating items                                       (15)        --            (83)        --            (98)
Changes in operating assets and liabilities:
        Accounts receivable                                      (11,563)      (3,762)      (2,472)        --        (17,797)
        Inventories                                                 (857)       4,016       (1,780)        --          1,379
        Prepaid expenses and other current assets                   (288)         354         (364)        --           (298)
        Other assets                                              (4,669)          15         (395)        --         (5,049)
        Accounts payable                                          (2,175)      (1,223)         402         --         (2,996)
        Accrued liabilities                                      (13,108)        (634)         344         --        (13,398)
        Pension liability (net)                                      885         --           --           --            885
        Income taxes receivable / payable                            304         (109)        (585)          (3)        (393)
        Intercompany receivables / payables                       (1,846)      (1,352)       3,165           33         --
                                                               ---------    ---------    ---------    ---------    ---------
          Net cash provided by (used in)
            operating activities                                 (32,173)        (413)        (746)          35      (33,297)
                                                               ---------    ---------    ---------    ---------    ---------

Cash flows provided by (used in) investing activities:
        Property, plant and equipment additions                   (2,751)          (7)        (171)        --         (2,929)
        Purchase of Del Laboratories, Inc                       (377,233)        --           --           --       (377,233)
                                                               ---------    ---------    ---------    ---------    ---------

          Net cash used in investing activities                 (379,984)          (7)        (171)        --       (380,162)
                                                               ---------    ---------    ---------    ---------    ---------

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

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

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

Net increase (decrease) in cash and cash equivalents               5,208         (420)        (936)        --          3,852

Cash and cash equivalents at beginning of period                   1,054         (115)       1,438         --          2,377
                                                               ---------    ---------    ---------    ---------    ---------

Cash and cash equivalents at end of period                     $   6,262    $    (535)   $     502    $    --      $   6,229
                                                               =========    =========    =========    =========    =========
</TABLE>



                                      -30-
<PAGE>


<TABLE>
<CAPTION>



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

                                                                       Guarantor      Non-Guarantor
                                                          Issuer      Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                                          ------      ------------    ------------   ------------    ------------
Cash flows provided by (used in)
  operating activities:
<S>                                                      <C>            <C>            <C>            <C>            <C>
Net earnings (loss)                                      $  6,899       $ (4,584)      $   (338)      $   --         $  1,977
Adjustments to reconcile net earnings
 (loss) to net cash
 provided by (used in) operating activities:
Depreciation and amortization                                 673             40             35           --              748
Amortization of display fixtures                              723           --               41           --              764
Amortization of deferred financing fees                        20           --             --             --               20
Deferred income taxes                                     (13,030)          --             --             --          (13,030)
Provision for excess and slow moving inventory               --             --               17           --               17
Provision for doubtful accounts                                25           --                1           --               26
Tax benefit on stock options exercised                         57           --             --             --               57
Other non-cash operating items                                (14)          --              233           --              219
Changes in operating assets and liabilities:
        Accounts receivable                                 2,740          2,635            598           --            5,973
        Inventories                                        (4,838)          (104)        (1,138)          --           (6,080)
        Prepaid expenses and other current assets             (32)          (377)            30           --             (379)
        Other assets                                       (1,609)             3            (80)          --           (1,686)
        Accounts payable                                   (1,945)         1,150          1,200           --              405
        Accrued liabilities                                21,827           (133)            26           --           21,720
        Deferred liability                                  1,367           --             --             --            1,367
        Pension liability (net)                              (330)          --             --             --             (330)
        Income taxes receivable / payable                 (11,344)          --             (254)          --          (11,598)
        Intercompany receivables / payables                (2,091)         1,665            438            (12)          --
                                                         --------       --------       --------       --------       --------
          Net cash provided by (used in)
            operating activities                             (902)           295            809            (12)           190
                                                         --------       --------       --------       --------       --------

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

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

Cash flows provided by (used in) financing activities:
        Principal payments under revolving
            credit agreement, net                            (800)          --             --             --             (800)
        Principal payments under mortgages                    (25)          --                2           --              (23)
        Proceeds from the exercise of stock options            12           --             --             --               12
        Acquisition of treasury stock                         (57)          --             --             --              (57)
                                                         --------       --------       --------       --------       --------
          Net cash provided by (used in)
            financing activities                             (870)          --                2           --             (868)
                                                         --------       --------       --------       --------       --------

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

Net increase (decrease) in cash and cash equivalents       (2,553)           283            774           --           (1,496)

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

Cash and cash equivalents at end of period               $  1,054       $   (115)      $  1,438       $   --         $  2,377
                                                         ========       ========       ========       ========       ========
  </TABLE>



                                      -31-
<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 LA CROSS(R) brand
is a leader in nail and beauty implements, providing a line of high quality
beauty implements including nail clippers, files, scissors, tweezers and eyelash
curlers. N.Y.C. NEW YORK COLOR(R) 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.


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. Synergetics has completed an
assessment of the Company's operations, and with the Company has jointly
developed a plan to implement a number of sales and operational process
improvements that the Company believes will reduce inefficiencies and improve
customer service as well as assist the Company in realizing previously
identified cost savings. Specifically, the Company is in the process of
implementing sales and operational process initiatives designed to improve:



                                       32
<PAGE>



o    the Company's sales forecasting, demand planning and production scheduling,
     which the Company expects will allow it to improve manufacturing
     productivity and reduce manufacturing costs;

o    the efficiency level of the Company's manufacturing facilities, which the
     Company expects will reduce manufacturing costs while lowering overall
     inventory requirements; and

o    the process of identifying, evaluating and selling promotional products,
     which the Company expects will allow it to improve margins on promotional
     products, reduce promotional returns and lower promotional inventory
     requirements.

The Company currently anticipates implementing these and other initiatives by
the end of 2006. Upon completion of these initiatives, the Company anticipates
annualized cost savings of approximately $10.0 million. The Company estimates
that it will incur one-time consulting fees and implementation costs associated
with these anticipated cost savings of approximately $4.6 million, of which $3.3
million have been incurred to date.




THE MERGER TRANSACTIONS

In January 2005, the following transactions were consummated in connection with
the merger:

o    DLI Acquisition Corp., an indirect, wholly-owned subsidiary of DLI Holding
     Corp. and a direct, wholly-owned subsidiary of DLI Holding II Corp., merged
     with and into Del Laboratories, Inc., with Del Laboratories, Inc.
     surviving, which the Company refers to as the merger. In connection with
     the merger, affiliates of Kelso, a third-party investor and others
     contributed $138.2 million in cash in exchange for interests in DLI Holding
     LLC, which in turn holds all of the outstanding shares of common stock of
     DLI Holding Corp. In addition, certain members of Del's senior management
     prior to and following the merger who the Company refers to as the
     continuing investors, exchanged stock options of Del Laboratories, Inc.
     with an aggregate spread value of $4.5 million into stock options of DLI
     Holding Corp. with an equivalent spread value.

o    DLI Acquisition Corp. issued the senior subordinated notes due 2012, (the
     "Subordinated Notes"), and entered into the prior senior credit facilities,
     comprised of a $50.0 million revolving credit facility, or the prior
     revolver, and a $200.0 million term loan facility, or the prior term loan
     facility (together the "Senior Debt"). Concurrently therewith, in
     connection with the merger, the rights and obligations of DLI Acquisition
     Corp. under the Subordinated Notes, the indenture, the prior senior credit
     facilities and related agreements were assumed by Del Laboratories, Inc.

o    The net proceeds from the purchase of interests in DLI Holding LLC by
     affiliates of Kelso, a third-party investor and the continuing investors,
     the offering of the Subordinated Notes and the borrowings under the prior
     senior credit facilities were used, among other things, to fund the cash
     consideration payable in connection with the merger to the old stockholders
     and option holders of Del Laboratories, Inc. and repay certain of the
     Company's indebtedness existing immediately prior to the merger, including
     payment of accrued interest and related prepayment premiums thereunder.

The Company refers to the merger and the related transactions described above as
the Merger.

ACCOUNTING FOR THE MERGER

Pursuant to the Merger, all of the Company's outstanding common stock was
acquired for $35 a share. The aggregate purchase price paid for all of the
Company's outstanding common stock including options exchanged and transaction
costs was approximately $416.7 million, comprised of $377.2 million for the
acquisition of the outstanding shares and options exercised, $6.9 million
representing the fair value of the options exchanged, $18.5 million in severance
payments, $1.0 million of prepayment penalties and $13.1 million of transaction
related costs. The Merger has been accounted for in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standard ("SFAS")
No. 141, "Business Combinations."




                                       33
<PAGE>


The Merger was completed on January 27, 2005. Since the actual results between
the period January 28, 2005 to January 31, 2005 were not material to the
Successor Period for the quarter or the annual results, the Company has utilized
January 31, 2005 as the acquisition date. As a result of the Merger, the
Company's capital structure and its basis of accounting differ from those prior
to the Merger. The Company's financial data in respect of all reporting periods
subsequent to January 31, 2005 reflect the Merger under the purchase method of
accounting. Therefore, the Company's financial data for the period before the
Merger (which is referred to as the Predecessor Period) generally will not be
comparable to the financial data for the period after the Merger (which is
referred to as the Successor Period). As a result of the Merger, the
consolidated statement of operations for the Successor Period includes interest
expense and amortization expense related to debt issuance costs related to
acquisition indebtedness and management fees that did not exist prior to the
acquisition. Further, as a result of purchase accounting, the fair values of
inventories, intangible assets, and fixed assets on the date of the merger
became their new "cost" basis. Accordingly, the cost of inventories, the
amortization of intangible assets with determinable lives and the depreciation
of fixed assets in the Successor Period are based upon their newly established
cost basis. Additionally, the fair value of pension assets and liabilities were
adjusted as a result of purchase accounting; therefore, pension expense for the
Successor Period is based upon the newly established fair values. Other effects
of purchase accounting in the Successor Period are not considered significant.


REFINANCING TRANSACTIONS

On October 28, 2005, the Company refinanced its Senior Debt with the issuance of
$185.0 million of senior secured floating rate notes (the "Notes") and $27.5
million of borrowings under a new two-year $75.0 million revolving credit
facility, or the Interim Revolver.

On December 29, 2005, the Company entered into a five-year $85.0 million
asset-based revolving credit facility, or the ABL Credit Facility. Upon the
closing of the ABL Credit Facility, all borrowings under the Interim Revolver
were repaid and the Interim Revolver was terminated.



                                       34
<PAGE>



RESULTS OF OPERATIONS

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

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30, 2005

The Company's net sales for the three months ended June 30, 2006 were $112.1
million, an increase of $3.2 million, or 2.9% compared to net sales of $108.9
million for the three months ended June 30, 2005.

The Cosmetic segment of the business generated net sales for the three months
ended June 30, 2006 of $89.4 million, an increase of $2.5 million, or 2.9%
compared to net sales of $86.9 million for the three months ended June 30, 2005.
Net sales increased primarily due to lower returns and allowances of
approximately $6.1 million and higher shipments in the SALLY HANSEN(R) nail
color, lip and foot care product lines, partially offset by lower shipments in
non-core product lines and reduced promotional sales activity. In addition the
Company believes that net sales were negatively impacted by inventory reductions
at major retailers. As reported by ACNielsen, the SALLY HANSEN(R) brand remains
the number one brand in the mass market nail care category with a 25.4% share of
market for the quarter. In nail enamel, the SALLY HANSEN(R) brand holds the
number one market share position with a 37.5% share of market. SALLY HANSEN(R)
has the number one market share position in nail treatment with a 48.7% share
of market for the quarter and holds the number one market share position in
bleaches and depilatories with a 31.4% of market for the quarter.

The over-the-counter Pharmaceutical segment of the business generated net sales
for the three months ended June 30, 2006 of $22.7 million, an increase of $0.7
million, or 3.2% compared to net sales of $22.0 million for the three months
ended June 30, 2005. 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 increased its leadership position in the oral analgesics
category with a 34.9% share of market for the second quarter, as reported by
IRI.

Cost of goods sold for the three months ended June 30, 2006 was $57.7 million,
or 51.5% of net sales, compared to $64.5 million or 59.2% of net sales for the
three months ended June 30, 2005. This decrease reflects cost savings achieved
as a result of operational improvements and a favorable change in the mix of the
Company's business to higher margined products, primarily in the Cosmetic
segment. Cost of goods sold for 2006 includes approximately $0.3 million of
costs related to moving costs for relocated inventory, break down, moving and
start-up costs associated with equipment transfers and other related charges, in
anticipation of the closure of the Little Falls facility. In addition, in
accordance with SFAS No. 151, the Company recorded a charge to cost of goods
sold of $1.5 million, or 1.4% of net sales relating to unabsorbed overhead costs
in connection with the closure of the Little Falls manufacturing facility. Cost
of goods sold for the three months ended June 30, 2005 included approximately
$4.5 million, or 4.1% of net sales related to the increase in inventories to
fair value as a result of purchase accounting.

Selling and administrative expenses for the three months ended June 30, 2006 was
$47.9 million, or 42.8% of net sales, compared to $44.3 million or 40.6% of net
sales for the three months ended June 30, 2005. The increase in selling and
administrative expenses for 2006 as compared to 2005 is due primarily to $0.9
million (0.8% of net sales) of consulting fees and expenses associated with
Synergetics, $1.1 million (1.0% of net sales) of additional costs related to the
Company's Annual Incentive Plan, $0.5 million (0.5% of net sales) of higher
freight costs, increased advertising expenses of $0.4 million (0.4% of net
sales) and a non-cash stock compensation charge of $0.4 million (0.4% of net
sales).

Merger expenses for the three months ended June 30, 2005 of $0.7 million are
primarily related to legal and advisory fees and expenses incurred in connection
with the Merger.




                                       35
<PAGE>


On January 13, 2006, the Company announced that it plans to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
intends to transfer a majority of these manufacturing operations to its Rocky
Point, North Carolina manufacturing facility and to outsource the remainder. In
addition, the Company plans to close several of its short-term leased warehouse
facilities in upstate New York and convert the Little Falls facility to a
warehouse to store a portion of the Company's inventory. Pursuant to the
Company's formal severance policy, a charge of $1.2 million for severance costs
and related benefits for approximately 299 employees was recorded in December
2005. 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.

Net interest expense for the three months ended June 30, 2006 of $9.4 million
was primarily attributable to interest incurred on the $185.0 million of Notes,
the $175.0 million of Subordinated Notes and the ABL Credit Facility.

Net interest expense for the three months ended June 30, 2005 of $6.9 million
was primarily attributable to interest incurred on the $200.0 million prior term
loan facility and the $175.0 million of Subordinated Notes.

Income tax benefit for the three months ended June 30, 2006 of $1.2 million was
based on the Company's expected effective tax rate of 38.5% for the year ending
December 31, 2006.

Income taxes for the three months ended June 30, 2005 of $2.6 million was based
on the Company's expected effective tax rate of (3.6)% for the period February
1, 2005 to December 31, 2005.




                                       36
<PAGE>


SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005

The following table sets forth the Company's results of operations for the six
months ended June 30, 2006, the Successor Period February 1, 2005 to June 30,
2005 and the Predecessor Period January 1, 2005 to January 31, 2005. The table
also sets forth the Combined Successor Period and Predecessor Period net sales
for the six months ended June 30, 2005.

<TABLE>
<CAPTION>

                                              SIX MONTHS             SIX MONTHS
                                                 ENDED                  ENDED
                                            JUNE 30, 2006           JUNE 30, 2005
                                            ------------ -------------------------------------
                                               ($000)             ($000)
                                              JANUARY 1, FEBRUARY 1,  JANUARY 1,
                                                2006 -    2005-         2005 -
                                              JUNE 30,    JUNE 30,    JANUARY 31,
                                               2006        2005         2005
                                            ---------    ---------    ---------

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

Net Sales
<S>                                         <C>          <C>          <C>          <C>
      Cosmetic segment                      $ 162,026    $ 142,317    $  14,756    $ 157,073
      Pharmaceutical segment                   42,208       37,504        3,450       40,954
                                            ---------    ---------    ---------    ---------
Total net sales                               204,234      179,821       18,206      198,027

Cost of goods sold                            106,257      103,225        9,718
                                            ---------    ---------    ---------

Gross profit                                   97,977       76,596        8,488

Selling and administrative expenses            89,893       73,163       11,475
Severance expenses                                474         --           --
Merger expenses                                  --          4,651       18,974
                                            ---------    ---------    ---------


Operating income (loss)                         7,610       (1,218)     (21,961)

Other income (expense):
    Gain on sale of land and building              41         --           --
    Interest expense, net                     (18,274)     (11,732)        (264)
    Other income (expense), net                   292           77         (232)
                                            ---------    ---------    ---------

Loss before income taxes                      (10,331)     (12,873)     (22,457)
Provision for (benefit from) income taxes      (3,977)         463      (24,434)
                                            ---------    ---------    ---------
Net earnings (loss)                         $  (6,354)   $ (13,336)   $   1,977
                                            =========    =========    =========
</TABLE>


The Company's net sales for the six months ended June 30, 2006 were $204.2
million, an increase of $6.2 million, or 3.1% compared to net sales of $198.0
million for the six months ended June 30, 2005.

The Cosmetic segment of the business generated net sales for the six months
ended June 30, 2006 of $162.0 million, an increase of $4.9 million, or 3.2%
compared to net sales of $157.1 million for the six months ended June 30, 2005.
Net sales increased primarily due to lower returns and allowances of
approximately $5.3 million and higher shipments in the SALLY HANSEN(R) nail
color and lip product lines, partially offset by lower shipments in non-core
product lines. As reported by ACNielsen, the SALLY HANSEN(R) brand remains the
number one brand in the mass market nail care category with a 25.7% share of
market for the period. In nail enamel, the SALLY HANSEN(R) brand increased its
number one market share position with a 37.7% share of market. SALLY HANSEN(R)
has the number one market share position in nail treatment with a 49.8% share
of market for the period and holds the number one market share position in
bleaches and depilatories with a 34.2% share of market for the period.



                                       37
<PAGE>







The over-the-counter Pharmaceutical segment of the business generated net sales
for the six months ended June 30, 2006 of $42.2 million, an increase of $1.3
million, or 3.1% compared to net sales of $41.0 million for the six months ended
June 30, 2005. 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 increased its leadership position in the oral analgesics
category with a 32.6% share of market for the period, as reported by IRI.

Cost of goods sold for the six months ended June 30, 2006 was $106.3 million, or
52.0% of net sales and reflects cost savings achieved as a result of operational
improvements and a favorable change in the mix of the Company's business to
higher margined products, primarily in the Cosmetic segment. Cost of goods sold
includes approximately $0.4 million of costs related to moving costs for
relocated inventory, break down, moving and start-up costs associated with
equipment transfers and other related charges, in anticipation of the closure of
the Little Falls facility. In addition, in accordance with SFAS No. 151, the
Company recorded a charge to cost of goods sold of $2.5 million, or 1.2% of net
sales relating to unabsorbed overhead costs in connection with the closure of
the Little Falls manufacturing facility. Cost of goods sold for the Successor
Period February 1, 2005 to June 30, 2005 was $103.2 million, or 57.4% of net
sales. Cost of goods sold for the period includes approximately $5.6 million, or
3.1% of net sales related to the increase in inventories to fair value as a
result of purchase accounting.

Cost of goods sold for the Predecessor Period January 1, 2005 to January 31,
2005 was $9.7 million, or 53.4% of net sales.

Selling and administrative expenses for the six months ended June 30, 2006 was
$89.9 million, or 44.0% of net sales. Selling and administrative expenses
includes approximately $2.6 million (1.3% of net sales) related to the
amortization of intangibles arising from the Merger, $1.6 million (0.8% of net
sales) of consulting fees and expenses associated with Synergetics and $0.6
million (0.3% of net sales) of management fees. Also included in selling and
administrative expenses for the six months ended June 30, 2006 was $1.4 million
(0.7% of net sales) of additional costs related to the Company's Annual
Incentive Plan, $0.8 million (0.4% of net sales) of higher freight costs, a
non-cash stock compensation charge of $0.8 million (0.4% of net sales) and $0.4
million (0.2% of net sales) of increased advertising expenses.

Selling and administrative expenses for the Successor Period February 1, 2005 to
June 30, 2005 was $73.2 million, or 40.7% of net sales. Selling and
administrative expenses includes approximately $2.2 million (1.2% of net sales)
related to the amortization of intangibles arising from the Merger and $0.5
million (0.3% of net sales) of management fees.

Selling and administrative expenses for the Predecessor Period January 1, 2005
to January 31, 2005 was $11.5 million, or 63.0% of net sales. Whereas selling
and administrative expenses remain fairly constant on a monthly basis, net sales
for the monthly period January 1, 2005 to January 31, 2005 represent
approximately 9% of sales for the combined period.

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

Merger expenses for the Predecessor Period January 1, 2005 to January 31, 2005
of $19.0 million, are primarily related to the payment of $18.8 million issued
upon closing of the transaction on January 27, 2005 in connection with the
separation agreement with the former Chairman, and approximately $0.2 million of
legal and advisory fees and expenses incurred in connection with the Merger.





                                       38
<PAGE>

On January 13, 2006, the Company announced that it plans to cease the
manufacturing activities at its facility in Little Falls, New York. The Company
intends to transfer a majority of these manufacturing operations to its Rocky
Point, North Carolina manufacturing facility and to outsource the remainder. In
addition, the Company plans to close several of its short-term leased warehouse
facilities in upstate New York and convert the Little Falls facility to a
warehouse to store a portion of the Company's inventory. Pursuant to the
Company's formal severance policy, a charge of $1.2 million for severance costs
and related benefits for approximately 299 employees was recorded in December
2005. 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. During the first six months of
2006, a charge of $0.2 million was recorded for such earned benefits and for an
adjustment to the initial accrual. During the remainder of 2006, the Company
estimates that it will incur an additional $0.5 million of costs in connection
with the relocation of inventory and equipment and approximately $0.2 million
for additional severance and relocation costs. Cash payments relating to
severance costs and related benefits of approximately $1.4 million are expected
to be made through the end of the second quarter of 2007. As a result of the
closing, it is anticipated that there will be a partial curtailment of the
pension plan, which is expected to reduce pension liabilities by approximately
$1.0 million to $1.5 million, with a pre-tax benefit impacting the full year
2006 results by approximately $0.3 million to $0.6 million.

Net interest expense for the six months ended June 30, 2006 of $18.3 million was
primarily attributable to interest incurred on the $185.0 million of Notes, the
$175.0 million of Subordinated Notes and the ABL Credit Facility.

Net interest expense for the Successor Period February 1, 2005 to June 30, 2005
of $11.7 million was primarily attributable to interest incurred on the $200.0
million prior term loan facility and the $175.0 million of Subordinated Notes.

Net interest expense for the Predecessor Period January 1, 2005 to January 31,
2005 of $0.3 million, was attributable to debt existing prior to the Merger.

Income tax benefit for the six months ended June 30, 2006 of $4.0 million was
based on the Company's expected effective tax rate of 38.5% for the year ending
December 31, 2006.

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

Income tax benefit for the Predecessor Period January 1, 2005 to January 31,
2005 of $24.4 million was comprised of an anticipated income tax refund
(received on October 27, 2005) of approximately $11.3 million attributable to
the utilization of a net operating loss carry-back, the recording of deferred
tax assets of approximately $13.4 million attributable to net operating loss
carry-forwards, and the recording of approximately $0.3 million of deferred tax
expense related to temporary differences.

Net earnings for the Predecessor Period January 1, 2005 to January 31, 2005 of
$2.0 million are attributable to the recording of the income tax benefit of
$24.4 million discussed above, which offset the $22.4 million loss before income
taxes.


                                       39
<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 following financing transactions were entered into in
connection with the Merger:

o    the closing of the prior senior credit facilities which provided for
     aggregate maximum borrowings of $250.0 million consisting of the prior term
     loan facility and the prior revolving credit facility;

o    the issuance and sale of the Subordinated Notes;

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

o    the repayment of all principal and accrued interest under the Company's
     then outstanding credit facilities and termination of all commitments
     thereunder; and

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

In the refinancing transactions, which closed on October 28, 2005, the Company
used the net proceeds from the offering of the Notes, together with borrowings
under the Interim Revolver, to repay in full the indebtedness outstanding under
the prior senior credit facilities, (consisting of $198.5 million under the
prior term loan facility and $5.0 million under the prior revolving credit
facility) and terminated the commitments under the prior senior credit
facilities.


REFINANCING

On October 28, 2005, the Company completed a private offering of $185.0 million
in principal amount of the Notes due November 1, 2011. The Notes bear interest
at a rate per annum equal to three-month LIBOR plus 5.0%. The Notes are
guaranteed by certain of the existing and future domestic subsidiaries of the
Company. The 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 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 Notes is payable quarterly on February 1, May 1,
August 1 and November 1, which commenced on February 1, 2006.


On July 14, 2006, a registration statement filed pursuant to the Securities Act
of 1933, as amended, registering the exchange offer for the Notes became
effective and the Company commenced the exchange offer of the privately placed
notes for SEC registered notes.





                                       40
<PAGE>



The Notes may be redeemed by the Company in whole or in part at any time on or
after November 1, 2007 at the redemption prices set forth in the Notes
indenture, plus accrued and unpaid interest and liquidated damages, if any, to
the redemption date. The Company may also redeem up to 35% of the original
aggregate principal amount of the Notes prior to November 1, 2007 with the
proceeds of one or more public equity offerings, at a redemption price equal to
100% of the principal amount thereof plus the applicable Eurodollar rate then in
effect, plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date. The Company is required to offer to repurchase the Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the repurchase date under some
circumstances involved upon the occurrence of a change in control. The Company
must also repurchase the Notes at a price equal to par, plus accrued and unpaid
interest and liquidated damages, if any, to the repurchase date, if the Company
sells assets under certain circumstances.

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

On October 28, 2005, the Company entered into a $75.0 million credit agreement,
maturing on October 28, 2007 with JPMorgan Chase Bank, N.A. as administrative
agent. This agreement was used as interim financing until December 29, 2005,
when it was replaced with an $85.0 million credit facility, as discussed below.

On December 29, 2005, the Company entered into $85.0 million asset-based
revolving credit facility, which was subsequently amended on February 23, 2006,
among the Company, DLI Holding II Corp., the several lenders from time to time
parties thereto and JPMorgan Chase Bank, N.A., as administrative agent. The ABL
Credit Facility 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 Notes and the note collateral agent
entered into an Intercreditor Agreement.

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% 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% based on the Company's borrowing base availability. The terms of the ABL
Credit Facility include a commitment fee 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.



                                       41
<PAGE>



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 June 30, 2006, the
Company had $27.0 million of senior debt outstanding and $0.5 million of letters
of credit outstanding under the ABL Credit Facility, $57.5 million of unutilized
commitments under the ABL Credit Facility and $57.5 million of availability
thereunder. As of August 4, 2006, the Company had $28.0 million of senior debt
outstanding and $0.8 million of letters of credit outstanding under the ABL
Credit Facility, $56.2 million of unutilized commitments under the ABL Credit
Facility and $56.2 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 (loss). As of June 30, 2006, the Company recorded an asset of $615 in the
accompanying consolidated balance sheet and recorded after-tax net gains of $209
and $378 in accumulated other comprehensive income (loss) during the three and
six months ended June 30, 2006, respectively. No hedge ineffectiveness was
recorded during the six months ended June 30, 2006.

Principal and interest payments under the Notes, the ABL Credit Facility and the
Subordinated Notes will represent significant liquidity requirements for the
Company. The Company expects that anticipated cash flow from operating
activities for the remainder of 2006 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.


FINANCIAL COVENANTS (AT JUNE 30, 2006)

Borrowings under the ABL Credit Facility are subject to certain conditions and
limitations described above. The indentures governing the Subordinated Notes and
the 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.



                                       42
<PAGE>


The ABL Credit Facility has fewer covenants than the prior senior credit
facilities, which the Company anticipates will increase its operating
flexibility. While the effective interest rate on the Notes are higher than that
of the indebtedness retired with the proceeds of the offering of the Notes, the
Company expects to realize greater liquidity and flexibility in its debt
structure. 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, while the prior senior
credit facilities contained a number of ongoing financial maintenance covenants.
Under the terms of the ABL Credit Facility, the minimum fixed charge coverage
ratio test would not have applied as of June 30, 2006 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 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 being
developed by the Company in conjunction with the Synergetics Installations
Worldwide, Inc. consulting group, certain non-cash charges or expenses deducted
in determining net income, certain cash restructuring charges, loss or gain
associated with the sale or write down of assets not in the ordinary course of
business, the amount of any net minority expense, and certain losses relating to
the disposition of excess or surplus inventory.

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

<TABLE>
<CAPTION>

                                                Qtr 3       Qtr 4       Qtr 1       Qtr 2
                                                 2005        2005        2006        2006       TOTAL
                                             --------    --------    --------    --------    --------

<S>                                          <C>         <C>         <C>         <C>         <C>
Net earnings (loss)                          $  1,932    $ (9,338)   $ (4,509)   $ (1,845)   $(13,760)
Income tax benefit                             (6,658)     (6,805)     (2,823)     (1,154)    (17,440)
Interest expense, net                           7,297       8,632       8,843       9,431      34,203
Loss on early extinguishment of debt             --         6,449        --          --         6,449
Depreciation and amortization                   5,396       5,762       5,912       6,185      23,255
Purchase accounting                             2,504        --          --          --         2,504
Losses related to disposition of excess,
  surplus or obsolete inventory                 3,627       5,000        --          --         8,627
Extraordinary, unusual or non-recurring
   items                                        2,450       1,842         146         328       4,766
Synergetics fees and expenses                     554         673         700         941       2,868
Synergetics implementation costs                 --          --           107         285         392
SFAS No. 151 unabsorbed overhead
  costs (2)                                      --          --         1,027       1,519       2,546
Non-cash stock compensation charges              --          --           344         412         756
Other                                             (34)       (123)        377         (23)        197
Credit agreement add back (1)                   1,376        --          --          --         1,376
                                             --------    --------    --------    --------    --------
Credit Agreement EBITDA (1)                  $ 18,444    $ 12,092    $ 10,124    $ 16,079    $ 56,739
                                             ========    ========    ========    ========    ========
</TABLE>


(1) Consolidated EBITDA was established by the ABL Credit Facility to be $18,444
for the fiscal quarter ended September 30, 2005.

Credit Agreement EBITDA, as defined, for the Successor Period April 1, 2005 to
June 30, 2005 was $10,397, which excludes a credit agreement add back of $1,758
and for the combined Predecessor Period January 1, 2005 to January 31, 2005 and
the Successor Period February 1, 2005 to March 31, 2005 was $6,690, which
excludes a credit agreement add back of $2,359.

                                       43
<PAGE>


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


OPERATING ACTIVITIES

Net cash used in operating activities for the six months ended June 30, 2006 of
$1.3 million was principally the result of a net loss of $6.4 million, an
increase in accounts receivable of $8.2 million and an increase in other assets
of $4.7 million offset by a decrease in inventories of $5.9 million. The
increase in accounts receivable was due to the timing of shipments during the
first half of 2006. Other assets increased primarily due to the purchase and
shipment of display fixtures to customers. Inventories decreased due to the
implementation by the Company of an inventory reduction program.

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

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


INVESTING ACTIVITIES

Net cash used in investing activities of $2.8 million for the six months ended
June 30, 2006 was primarily related to 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 2006 will be
approximately $16.0 million which will be used primarily for machinery and
equipment and display fixtures.

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

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


FINANCING ACTIVITIES

Net cash provided by financing activities for the six months ended June 30, 2006
of $4.5 million was primarily due to borrowings under the Company's ABL Credit
Facility. Cash paid for interest during the six months ended June 30, 2006 was
approximately $16.5 million. The Company anticipates that its debt service
requirements in 2006 will be approximately $35.0 million.




                                       44
<PAGE>


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

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

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

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 2005 Annual Report on Form 10-K. Since December 31,
2005, 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 paragraphs.


STOCK-BASED COMPENSATION

With the adoption of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("SFAS No. 123(R)") on January 1, 2006, the Company is
required to record the fair value of stock-based compensation awards as an
expense. In order to determine the fair value of these awards on the date of
grant, the Company used the Black-Scholes option-pricing model to value the
Service Options and the Operating Units and used a lattice-based valuation model
to value the Exit Options and the Value Units. Inherent in these models are
assumptions related to expected stock-price volatility, option/unit life,
risk-free interest rate and dividend yield. While the risk-free interest rate
and dividend yield are less subjective assumptions, typically based on factual
data derived from public sources, the expected stock-price volatility and
option/unit life assumptions require a greater level of judgment which makes
them critical accounting estimates.

Because the Company's common stock is not publicity traded, the Company used an
expected stock-price volatility assumption that was determined based on an
examination of the historical volatility of the stock price of the Predecessor
Company; the historical and implied volatility of stock prices of selected
comparable companies and the nature of those companies; and other relevant
factors. The Company used a stock-price volatility of 45% for stock options and
Override Units granted during the three and six months ended June 30, 2006.




                                       45
<PAGE>


With respect to the weighted-average option/unit life assumption, the Company
considered Kelso's investment behavior relating to other comparable investments
(exit strategy, return on investment and holding period). The Company used a
weighted-average expected option/unit life assumption of 3.9 years for the
Service Options and Exit Options and 3.99 years for the Operating Units and
Value Units. For the lattice-based valuation models, the Company used an early
exercise factor at the time at which Kelso would sell the Company to generate a
multiple of 2.8 times their initial investment.



NEW ACCOUNTING PRONOUNCEMENTS

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 establishes a
recognition threshold and measurement for income tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN No. 48 also prescribes a two-step evaluation
process for tax positions. The first step is recognition and the second is
measurement. For recognition, an enterprise judgmentally determines whether it
is more-likely-than-not that a tax position will be sustained upon examination,
including resolution of related appeals or litigation processes, based on the
technical merits of the position. If the tax position meets the
more-likely-than-not recognition threshold it is measured and recognized in the
financial statements as the largest amount of tax benefit that is greater than
50% likely of being realized. If a tax position does not meet the
more-likely-than-not recognition threshold, the benefit of that position is not
recognized in the financial statements.

Tax positions that meet the more-likely-than-not recognition threshold at the
effective date of FIN No. 48 may be recognized or, continue to be recognized,
upon adoption of the Interpretation. The cumulative effect of applying the
provisions of FIN No. 48 shall be reported as an adjustment to the opening
balance of retained earnings for that fiscal year. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. Accordingly, the Company plans
to adopt FIN No. 48 on January 1, 2007. The Company is evaluating the impact of
adoption of FIN No. 48 and is unable, at this time, to quantify the impact, if
any, to retained earnings at the time of adoption.




FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this 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 Form 10-Q, including, without limitation, statements regarding
the Company's future financial results, economic conditions, trends, certain
risks and uncertainties, expected efficiency improvements, and expected future
cost savings are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "estimate," "anticipate," "should,"
"look forward to," "indications," "plan," "momentum," "believe" or "continue" or
the negative thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in these forward-looking
statements are reasonable, the Company can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations, or
"cautionary statements," include, without limitation:



                                       46
<PAGE>



     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 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 rate or foreign exchange rate changes affecting the Company;

     o    regulatory requirements and government regulatory action;

     o    failure to maintain satisfactory compliance with good manufacturing
          practice, or GMP, 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;

     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 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.



                                       47
<PAGE>





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 June 30, 2006 under the 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 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.


Item 4. CONTROLS AND PROCEDURES

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

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




                                       48
<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,
2005.


Item 6.    EXHIBITS

           Exhibits
             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.



                                       49
<PAGE>


                                   SIGNATURES


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



                                             DEL LABORATORIES, INC.
                                             (Registrant)



           DATE:   AUGUST 7, 2006            /S/ CHARLES J. HINKATY
           -------------------------         ----------------------
                                             Charles J. Hinkaty
                                             President and
                                             Chief Executive Officer








           DATE:   AUGUST 7, 2006            /S/ JOSEPH SINICROPI
           ----------------------            --------------------
                                             Joseph Sinicropi
                                             Executive Vice President and
                                             Chief Financial Officer





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